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Equitas SFB saw a steady operational quarter with PPOP at INR 3.9bn (+36% YoY) lead by robust NII growth (+28% YoY) and higher other income due to one time recognition on sale of ARC of INR 800mn of which INR 700mn was accounted as other income. NIMs improved to 9.1% (+10bps QoQ) with it expected to be range bound in near term and moderation expected in medium term as product mix changes. AUMs grew at a brisk pace of +35% YoY to INR279bn on the back of highest ever disbursements this quarter at INR 59bn (+81% YoY). Deposit growth saw a sharp uptick (+34% YoY) with CASA at 42.3% (-396bps QoQ) due to increase in contribution from TD (58% vs 54% QoQ). Mgmt. emphasized on plans to change its product mix gradually over the next 3-4years with MFI contributing to 14-15%, VF at 20-25%, mortgages ~50%. Equitas SFB, in our view, is well poised to deliver 25% CAGR in AUMs and we see the bank achieving RoAs/RoEs of 2.2%/17.5% by FY25E with acceleration in loan growth, moderating credit costs driven by operating leverage. RBI’s approval for extension of MD’s tenure which is expiring in Jul’ 23 will be a key monitorable. Maintain BUY with a revised TP of INR 90 valuing the stock at 1.5x FY25E BV.

* Strong AUM growth: Overall AUM growth stood at INR 279bn (+35% YoY/+12% QoQ) on the back of highest ever disbursements this quarter at INR 59bn (+81% YoY,+23% QoQ). Small business loans (incl. home loans), micro finance and vehicle finance book grew at +67%/+72%/+69% YoY on account benign credit environment. Deposit growth saw a sharp uptick (+34% YoY/+9% QoQ) with CASA at 42.3% (-396bps QoQ) due to increase in contribution from TD (58% vs 54% QoQ) and bulk TD mix increasing (39% vs 34% QoQ). Mgmt. remains confident of maintaining loan growth at between 25-30% as they also focus on three new products viz. PL, credit cards and CAT1 license recently received for forex trade. Over the next 3-4 years Equitas SFB plans reducution in MFI share to 14-15% against 19% in 4QFY23. Mgmt. also strategiges to ramp up on acquisition of new customers to increase CASA share. We build CAGR AUM growth of 25% by FY24- 25e.

* Operationally steady quarter, one-off on ARC transaction: PPOP grew to INR 3.9bn (+36% YoY, +38% QoQ) lead by robust NII growth (+28% YoY, +9% QoQ) accompanied by increased other income due to one time recognition on sale of ARC of INR 800mn of which INR 700mn was accounted as other income. NIMs improved to 9.1% (+10bps QoQ) with mgmt. guiding for 8.9-9.1% in the near term and marginal reduction over 3-4yrs with change in product mix. Opex remained elevated at INR 5.6bn (+34% YoY, +7% QoQ) and cost to income ratio stands at 59% vs 65% QoQ which appears lower on account of increased other income. Mgmt. commented that cost ratios are expected to be sticky in near term around 60-62% levels led by costs on newer products and digital infrastructure spends which will help improve efficiencies in the medium to long term. Asset quality has witnessed significant improvement with GNPA/NNPA at 2.76/1.21% vs 3.63/1.82% QoQ. Mgmt. believes to keep credit cost restricted between 120-125bps respectively with expected improvement in PCR to 70% vs 57% in 4QFY23 in medium term. We have built avg credit costs at 131bps.

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