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CTI and NIMs key going ahead to maintain 2% RoA

Equitas SFB (EQSFB) continues its impressive streak by achieving +2% Reported RoA for the third consecutive quarter. This performance has also translated into a significant improvement in Reported RoE, which now stands at an impressive 14.54%, showing a remarkable increase of 550 basis points YoY. However, on opex front there was sharp increase which led to CTI at 65.1% (+440/700bps YoY/QoQ). On the front of asset quality, EQSFB has demonstrated satisfactory results, with gross slippages reverting to pre-Covid levels, hovering at around 3%. Furthermore, the NNPA ratio is flattish QoQ at 1.12%. Going ahead, management has guided pressure on NIMs for FY24 as repricing of deposits is to yet to be totally reflected in numbers (NIMs guidance of 8.5%). However, management is confident to maintain +2% RoAA in spite of NIMs compression primarily due to lower credit cost and operating efficiencies picking up in coming quarters. We maintain our BUY recommendation and value EQSFB at 2x ABVE for FY25E, resulting in a TP of Rs115.

Earnings beat, inspite of higher opex, thanks to lower credit cost 
EQSFB’s earnings performance in the 1QFY24 was better than our expectations. The PAT came in at Rs1,912mn, posting a whopping increase of 97.0% (YoY). This figure exceeded our estimated PAT of Rs1,589mn. Higher other income and lower credit cost for the quarter has led to beat in spite of higher than expected operating cost for the quarter. NII came in at Rs7.4bn, (+27.9% YoY/+5.1% QoQ) in line with our expectations in spite of increase in CoF. PPoP came at Rs3.1bn, (+16.5% YoY/-19.2% QoQ) in line with our estimates.

Good show on total deposits front; CASA continues to decline (-390bps QoQ)

On the liability front, total deposits grew by +36/+9%; however granular RDs grew +49/18% YoY/QoQ respectively. EQSFB, similar to its peers, continues to experience pressure on CASA (38.4% from 42.3% as of 4QFY23)..

High growth visibility + reasonable valuations = BUY

We expect EQSFB to report strong growth in advances, NII, and PAT, with CAGR of 29%, 25%, and 39%, respectively over FY23-25E. This translates into 2%+ RoAA and consistent RoAE of 15%/17%+ for FY24E/25E, respectively. As part of its growth strategy and in line with its aspirations to apply for a universal bank license over time, the management is now diligently working to align certain key parameters with those of Universal Banks.

We maintain our BUY recommendation and value stock at 2x ABVE for FY25E, resulting in a TP of Rs115, representing a potential upside of 21% from the current levels.

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