Buy Equitas Small Finance Bank Ltd For Target Rs.80 - Yes Securities
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Managing cost/income ratio will be key
Our view
Encouraging disbursements across product segments, healthy recovery in core fees, sustained robust traction in retail SA and TD accretion, incremental restructuring (Rs5bn) at lower end of the guidance and substantial reduction in 31-90 dpd bucket (largely via collections) were positive takeaways from ESFB’s Q2 FY22 performance. Factors leading to NII, PPOP and PAT miss versus our estimates were higher run-off (from stronger collections), higher opex (from higher business activity) and elevated provisions (mainly restructuring related). With disbursements surpassing pre-Covid momentum across product segments, stress built-up provisioning complete and improving collections in the delinquent pool, the banks expects to soon revert to 20- 25% growth trajectory and normative credit cost (1.5-2%).
Disbursements in key lending segments of SBL, VF, HL and MFI recovered strongly and stood 2-4x of Q1 FY22 levels and even materially higher than Q4 FY21 volume. The 6%+ qoq growth in gross advances despite strong collections implies a robust annualized growth momentum. Share of CASA and Retail TD increased significantly on sequential basis to 45% and 37% of total customer deposits respectively. The granularity of SA continued to improve with accelerated new account additions both through Branch Banking and Digital Banking channels. The daily avg. CoD declined by 13 bps qoq to 6.64%. NIM was at 8.1% and is expected to stabilize in the band of 8- 8.5% with not much change in asset mix. While cost/income has been elevated in H1 FY22, the management remains reasonably confident about the ratio coming down to 55% over the medium term.
ESFB will soon raise capital vis a QIP issue to meet MPS of 25%; which is likely to buffer Tier-1 capital by ~350 bps. Basis current estimates (which does not factor the QIP), the bank trades at 1.6x FY24 P/ABV for a probable 2% RoA and 17% RoE. The recent regulatory developments pertaining to the scheme of reverse merger with holding company. significantly increases the odds of the process being completed over the next 12 months. We expect valuation to re-rate towards the long-term RoE potential in the longer run. Retain BUY rating with 12m PT of Rs80.
To Read Complete Report & Disclaimer Click Here
Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632
Above views are of the author and not of the website kindly read disclaimer
