Equitas Small Finance Bank - Q1 FY22 Result Report - YES Securities

(Rating: BUY, TP: Rs 75, Upside: 19.3%)

Below expectations due to a sharper deterioration in asset quality

- The profit of ESFB was substantially impacted by spike in credit cost (3.4% on annualized basis) and higher opex, notwithstanding a larger treasury gain, significant recoveries and miscellaneous income and improvement in NIM.

- The key negative highlight was the sequential increase in stress pool (GNPL + Restructured) by 9-11% (incl. expected restructuring in Q2). While the bank had restructured loans of 2.4% as of March, the second wave is likely to cause restructuring of 8-10% of the book (bulk in SBL and Vehicle Finance segments).

- NIM improved on the back of sustained reduction in the cost of funds, which was underpinned by substantial mobilization of SA deposits (CASA share jumped from 34% to 40% qoq) and marginal decline in weighted average SA cost. Despite higher credit cost, the GNPL coverage came down to 51%, as bulk of the provisions were created on the restructured pool.

- We have cut FY22-24 earnings and ABV estimates materially as we factor higher credit cost, marginally slower growth and lesser than previously anticipated improvement in cost/income metric.

- However, we retain our 12m PT of Rs75 by raising valuation multiple on account of the scheme of amalgamation with the holding company which if approved by RBI and SEBI would eliminate a large supply hangover on the stock.

Shares of Equitas Small Finance Bank Limited was last trading in BSE at Rs. 60.75 as compared to the previous close of Rs. 62.95. The total number of shares traded during the day was 199252 in over 1708 trades.

The stock hit an intraday high of Rs. 61.8 and intraday low of 59.75. The net turnover during the day was Rs. 12059122.

Source : Equity Bulls

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