Buy Equitas Small Finance Bank, Stock Analysis and Target Price for 2024.

 
Sustained business momentum; however, focus on CD ratio improvement kept NII flat QoQ.

 Equitas reported a strong quarter in sustained business growth with deposits/advances growing 12%/6% QoQ, further improving the CD ratio to 86.9% vs. 90% QoQ. However, moderation in the CD ratio, coupled with a negative impact on yield in Q4FY24, due securitisation of high yielding book, put pressure on NIMs which fell by 20bps QoQ. NII, though, was flattish for the quarter. Nevertheless, PPoP grew by 4% QoQ aided by 17% QoQ growth in other income with fee-based activity generally being higher in Q4 and steady cost to income at 63%. 

RoAs sustained despite 22bps QoQ rise in credit costs.

  Equitas sustained RoA at 1.9% during Q4FY24 despite a 22bps inch-up in credit costs, supported by its strong operating performance. Notably, the increase in credit costs was largely due to a one-time effect of new NPA classification (NPL tagging of standard primary borrower if co-borrowers default), which led to additional slippages of INR 384.5mn resulting in additional provisioning of INR 151.7mn during Q4FY24. Going forward, management is confident of maintaining credit costs at pre-covid levels of ~1.2%. Further, NIMs are expected to remain steady going ahead, considering Equitas’ incremental focus on high-yielding secured products such as SBL, used CV, micro-LAP, etc. and 80% of deposits already being repriced at higher rates. Overall, management expects RoAs to sustain at ~2% on a steady-state basis.

We have a buy recommendation on the stock with a Target Price of Rs 120.CMP 98.

#stockstobuy,#stockmarket,#marketpost