Buy Equitas Holdings Ltd For Target Rs. 110 - Motilal Oswal
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Strong deposit traction; CE recovery remains a key monitorable
Equitas Small Finance Bank has released its business update for 1QFY22. Here are the key highlights:
* Equitas Small Finance Bank reported 14.6% YoY growth (broadly flat QoQ) in gross advances to ~INR178b. The muted trends were primarily attributable to lockdowns in core states/territories, which resulted in subdued disbursements of INR12.7b (~50% QoQ decline). However, on a YoY basis, it reported a ~125% increase.
* On the liability front, total deposits grew ~45% YoY / ~4% QoQ to INR171b. This was primarily led by robust CASA growth of ~189% YoY (21% QoQ); thus, the CASA ratio improved to 39.7% (v/s 34.2% in 4QFY21 and 20% in 1QFY21).
* On the asset quality front, collection efficiency trends declined sharply to 77.8% in May’21 (v/s 108.5% in Mar’21 and 105.2% in Apr’21). However, they showed some recovery to 83.5% in June’21.
* Among the segments, collection trends in the MFI portfolio declined to 66.9% in Jun’21 (v/s 93.4% in Mar’21, 88.8% in Apr’21, and 63.6% in May’21); collection trends showed strong recovery in small business loans / vehicle finance to ~85.1%/~89.3% in Jun’21 (v/s ~76.8%/~67.3% in May’21). Please refer to Exhibits 2, 3, and 4 for further details.
* Valuation and view: Equitas reported muted loan growth, impacted by subdued disbursements, on account of regional lockdowns. However, deposit growth remains robust, led by healthy traction in CASA deposits, with the CASA ratio surging to ~40%. On the asset quality front, collection efficiency declined sharply in May’21 across segments, but showed recovery in vehicle / small business loan segments in Jun’21. However, collection efficiency in the MFI portfolio declined sharply. Overall, collection trends would be a key monitorable in the near term. We maintain a BUY rating, with TP of INR110 (1x FY23E ABV).
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