Rising CASA helped protect margins
According to Emkay Research, “Equitas recorded 15% year-on-year growth in assets under management and the highest quarterly disbursements ever of Rs 33 billion, driven mainly by strong demand for vehicle finance, SBL and CASA remained high and healthy at 52% on strong CASA traction and a decline in TD, which helped protect the NIM at 9.1% despite lower loan yields, l Most of the credit growth occurred at the end of the quarter. That said, the bank’s long-standing position to reduce the share of its portfolio of high-yielding MFIs, as well as increasing competition in the price in VF and its preference for a secure wallet (including housing), should create pressure on NIM.The bank believes that it should be able to contain the margin pressure as it has a strong CASA profile , what i should control the costs.”
According to the brokerage, “Gross slippages were high at Rs4.1bn (9.7% of loans vs. 6.4% in Q3). However, higher recoveries/woffs led to a 37bps QoQ contraction in the GNPA ratio to 4.2% The specific PCR remained uncomfortably low at 43%, and the bank now intends to gradually increase it to 60% 30-60 DPD, 9-10% in 60-90 DPD and 19% in slice >90 DPD 48% of the restructured portfolio is in the CV segment and 28% in SBL According to management, the 31-90 DPD pool (SMA) for SBL/CV/MFI was 5.2%/7, 8%/6%, while overall DPD 31-90 decreased to 5.1% in Mar ’22 from 6.6% in Dec ’21 from 6.5% of loans in Sept ’21.”
Buy for a target price of Rs 75 per share
Equitas has performed well on the liability front while gradually diversifying its asset base away from MFIs. However, it should focus on portfolio quality and build countercyclical buffers. The brokerage said: “We expect the bank’s RoA/RoE to improve to 1.7%-2% / 11-16% in fiscal year 23-25E, from a low of 1, 1% / 7% in FY21, mainly due to better growth, lower operating leverage and LLP Keep buying with a TP of Rs75 based on 1.8x FY24E ABV (vs. Rs80 based on 2x Dec’23E ABV) due to higher CoE and effectively reducing holdco’s TP to Rs164 from Rs175 According to the brokerage, higher than expected NPA formation, loss of momentum in flow CASA and management attrition are some of the key risks.