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Reiterates healthy growth and profitability guidance Guides for steady-state loan growth of 20% and RoA of 1.5%

Equitas Small Finance Bank (EQUITASB), at its analyst meet, highlighted its long-term strategy of growing at a healthy pace of 20%+ over the next five years. Growth is expected to be driven by secured asset classes like small business loans (SBL), vehicle finance (VF), and home loan (HL) segments, while the MFI business is expected to be capped at 10% of the loan book. The liability franchise is likely to be strengthened by progressively graduating toward mass affluent-formal segments and deepening penetration in existing geographies. Operating leverage is expected to improve over the medium term, supported by higher in-house sourcing, streamlined processes, and new tech capabilities. Asset quality trends remain healthy, with stability in the MFI segment and strong performance across core secured classes such as SBL and VF. Management has guided for credit costs to settle at 1.25-1.50% on a steady state basis, and has guided for an RoA of 1.5%, with an upward bias toward 1.8% during favorable times. We reiterate our BUY rating with a TP of INR85 (premised on 1.4x Mar’28E ABV).

Growth to be driven by secured segments; MFI mix to remain at ~10%

Management reiterated its growth strategy of scaling the secured asset book while maintaining the unsecured mix at 15% over the long term. Growth in secured segments is expected to be driven by SBL, VF, and HL segments, with MFI capped at 10% of the loan mix and the credit card and personal loan book targeted at 5% of the overall loan book. The bank has guided for loan CAGR of 20%+ over the next five years. We build in a loan CAGR of 18.5% over FY26-FY28, as against management’s guidance of 20%.

* SBL – The segment remains the key growth driver, supported by low delinquencies and negligible write-off history. Sourcing remains largely in-house (70%). The portfolio mix comprises UCV (56%), New CV (21%), and Used Cars (23%).

* VF – Growth is expected to be led by used CV and used car segments. Direct relationships with OEMs, dealers, and connectors continue to support sourcing capabilities.

* MFI – Management is adopting a more calibrated approach, with underwriting norms remaining stricter than industry standards. 72% of the current MFI book is under CGFMU coverage.

* Affordable Housing – It has delivered ~46% CAGR and continues to exhibit strong asset quality.

* MSE Business Banking – It is expected to remain around 3-4% of the overall book. Distribution business banking is likely to be anchored through liability branches.

* Gold Loans – The segment remains a key focus area for the bank, with management aiming to scale the book further. The bank plans to add 100 gold loan branches in the near term.

* Credit cards and personal loans – The bank aims to scale credit cards and personal loans to 5% over the next five years, largely by cross-selling to ETB customers.

Valuations and view

* EQUITASB is gradually returning to its growth trajectory, led by growth in its core secured retail asset segment, alongside normalization in the MFI portfolio.

* Following the hike in SA and TD rates in 4QFY26, we envisage the CASA mix to improve from the current ~26.0%, supporting the bank’s ability to sustain NIMs >7.0% over the medium term (though a marginal decline over 4QFY26 levels).

* Operating leverage is expected to play out in FY27-FY28, driven by scale benefits, controlled branch expansion, and a continued focus on improving digital and cross-sell capabilities.

* With stability in asset quality across portfolios, we expect credit costs and slippages to continue trending lower, providing a key driver for earnings reflation.

* At the current valuation of 1.1x FY28E, EQUITASB trades attractively. We reiterate our BUY rating with a TP of INR85 (premised on ~1.4x Mar-28E ABV). Re-rating catalysts include a pickup in business growth, stabilizing NIMs, and a continued improvement in asset quality trends.

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