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Margin contracts 12bp QoQ; maintains 1.5% exit RoA guidance

* Equitas SFB (EQUITASB) reported 1QFY27 PAT of INR1.8b (16% beat) amid healthy other income and controlled provisioning.

* NII grew 31% YoY/5% QoQ to INR10.3b (in line). NIM contracted 12bp QoQ to 7.24%, led by an 11bp QoQ increase in cost of funds to 7.05%.

* Net advances grew healthy at 28.8% YoY/4.6% QoQ to INR447b. MFI business grew 4.6% QoQ. Deposits grew 10.4% YoY/grew 5.2% QoQ. CASA ratio moderated 108bp QoQ to 25.1%.

* Slippages increased to INR4.0b from INR3.5b in 4QFY26 (up 16% YoY/down 40% QoQ). GNPA/NNPA ratios improved 19bp/1bp QoQ to 2.42%/0.71%. PCR declined to 71.0%.

* We have increased our earnings estimates by 10%/7% in FY27/FY28 and estimate an RoA/RoE of 1.2%/12.2% by FY27. Reiterate BUY with a TP of INR90 (1.4x FY28E ABV)

Highlights from the management commentary

* The company has maintained its FY27 RoA guidance of 1.2%, with an exit RoA guidance of ~1.5%. The bank suggested that there could be an upward revision in the guidance next quarter. * Increase in TD and SA rates is expected to drive higher CoF. NIM is expected to settle at ~7.1% over the next two to three quarters.

* Loan growth is expected to remain strong at ~20% YoY.

* Management reiterated that no stress has emerged from geopolitical developments, while the secured portfolio continues to benefit from extensive guarantee cover.

Valuation and view: Reiterate BUY with a TP of INR90

EQUITASB reported a steady quarter with healthy earnings, driven by other income and lower provisions. Margin contracted 12bp QoQ, driven by an increase in funding costs. The bank expects to sustain full-year NIM at ~7.1 %, with CoF likely having peaked following SA and TD rate hikes. Operating expenses may see some moderation in the coming quarters, driving an increase in RoA. Advances growth was healthy, led by traction in MFI, VF, SBL, and HL segments. The bank also expects the CD ratio to be maintained at current levels. The decline in CASA ratio could exert some pressure on NIMs. On asset quality, GNPA and NNPA ratios improved, with credit costs expected to remain broadly stable. There has been no immediate impact from the West Asia conflict, although the bank remains cautious about rising fuel costs, given its standard asset provision in the MFI segment. We have increased our earnings estimates by 10%/7% in FY27/FY28 and expect RoA/RoE of 1.2%/12.2% by FY27E. Reiterate BUY with a TP of INR90 (1.4x FY28E ABV)

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