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Equitas SFB reported a core PPOP of INR 3.3bn (+36% YoY, +6% QoQ) on account of strong credit growth across segments (AUM growth +37% YoY, +6% QoQ) and controlled opex (+2% QoQ , +20% YoY). NIMs declined to 8.43% (-33bps QoQ) on account of majority of deposits being repriced in 2Q24 and management maintained its NIM guidance of 8.5% for FY24E. AUM stood at INR 312bn (+37% YoY/+6% QoQ) led by vehicle finance, small business loans and affordable housing loans. Deposit growth remains strong (+42% YoY) with CASA at 34% (-380bps QoQ) due to increase in contribution in TD (82% vs 20% QoQ). Equitas SFB sold INR 1620mn of NPA assets to ARC during 2Q24 for a consideration of INR 1180mn resulting in decline in GNPA/NNPA to 2.27%/0.97% (-49bps/ -21bps QoQ); PCR stood at 58% in 2Q24. We build avg. credit costs of 110-120bps over FY24-25E. We maintain BUY on the stock given its continued growth momentum, diversified asset portfolio and operating leverage. We see Equitas SFB achieving RoAs/RoEs of 2.35%/18.5%. Maintain BUY with a TP of INR 115 valuing the stock at 1.9x P/B FY25E.

* Healthy loan growth; in-line operational performance: Overall AUM growth stood at +37% YoY/+6% QoQ on the back of healthy disbursements (+29% YoY,+4.3% QoQ). AUM growth was broad based led by vehicle finance (+38% YoY,+6% QoQ), small business loans (+32% YoY,+7% QoQ) and housing finance (+69% YoY,+12% QoQ); whereas MFI witnessed moderation (+42% YoY,+5% QoQ) and MSE finance witnessed contraction (-10% YoY, -5% QoQ). Deposits growth stood at +42% YoY/+11% QoQ aided by momentum in term deposits (+20% QoQ) while CASA declined to 34% (- 480bps QoQ). NIMs stood at 8.43% (-33bps QoQ) on account of majority of deposits being repriced in 2Q24. Mgmt. maintained NIMs guidance of 8.5% for FY24E on the back of asset side repricing setting off increase in funding costs. We build an AUM CAGR of 23-28% over FY24-25E. Operating profit stood at INR 3.3bn (+36% YoY, 5.8% QoQ) supported by steady NII growth (26% YoY, 3% QoQ) operating expenses (+20% YoY, +2% QoQ). Cost to income ratio remained within mgmt guidance at 65% and expected to gradually improve further. PAT was aided by lower credit cost (-30% YoY, 5% QoQ) and stood at INR 1.98bn (+70% YoY, +4% QoQ).

* Improved asset quality: Overall asset quality improved with GNPA/ NNPA at 2.27%/0.97% (-49bps/ -21bps QoQ) and PCR at 58% in 2Q24. Equitas SFB sold INR 1620mn of NPA assets to ARC during 2Q24 for a consideration of INR 1180mn; provisions of INR 480mn has been created against the SR’s. Gross slippages increased to 4.12% (vs 3.62%) on account of marginal increase witnessed in commercial vehicle finance segment due to cyclical impact; though it is expected to normalise in coming quarters. Additional provisions of INR 280mn were made during the quarter to strengthen coverage. We build avg. credit costs of 115bps over FY24-25E.

* Valuation and view: We maintain BUY on the stock given its continued growth momentum, diversified asset portfolio and operating leverage. We see Equitas SFB achieving RoAs/ RoEs of 2.35%/18.5%. Maintain BUY with a TP of INR 115 valuing the stock at 1.8x FY25E BV.

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CIN Number : L67120MH1986PLC038784