Zero Promoters’ Stake Stock Is Pick of The Week By Axis Securities For TP of Rs 125: Here’s Why

Leading diversified Equitas SFB (EQSFB) provides a broad range of products, mostly to low- and middle-class customers as well as businesses with restricted or no access to traditional banking and finance channels. The bank has about 900 branches across its network, most of which are located in Tamil Nadu (TN). Equitas SFB, with a target price of Rs 125, is this week's top chosen stock according to brokerage Axis Securities.

Investment Rationale

These investing reasons support buying shares of Equitas Small Finance Bank this week, according to Axis Securities research analysts.

Business growth expected to remain buoyant: The bank has continued to deliver a strong performance both on the advances and deposit growth in H1FY24. In the provisional update released by the bank for Q3FY24, advances growth was robust at 32/5% YoY/QoQ, while deposit growth was steady at 39/5% YoY/QoQ. Equitas continues to see healthy demand across products and is eyeing to exit FY24 with credit growth of 25-30%, with growth delivery at the upper end of the guided band.

Healthy advances growth expected over FY24-26E: The key focus segments of MFI, SBL, CVs, and Affordable Housing will continue to drive growth for the bank. Moreover, the bank is gearing up to roll out its 2 new segments - Personal Loans and Credit Cards in Q2FY25. Over the medium-to-long term, these products are likely to contribute ~10% of the overall book. We expect EQSFB to deliver a healthy advances growth of ~27% CAGR over FY24-26E.

Liability Franchise shaping up well: EQSFB has built a strong liability franchise with growth led primarily by CASA Deposits. However, amidst intensifying competition, EQSFB like all banks has seen a shift towards TD deposits owing to higher interest rates. The bank remains focused on maintaining its CASA Ratio at ~32-33%. EQSFB is confident of growing deposits at 40-42% vs. FY23. In the senior citizen category, the bank's first mover advantage (higher rates introduced ahead of peers) is also playing a key role in driving deposit growth. EQSFB expects to exit FY24 with a C/D ratio of 90% and will look to gradually decrease it before settling it at 80-85% on a steady state basis.

Eyeing to deliver 2% RoA: The bank is witnessing a gradual improvement in disbursement yields. However, a continued increase in CoF will keep margins under pressure. In Q3FY24, NIMs are expected to contract by ~15-20bps, before stabilizing in Q4FY24. Thus, the bank could exit FY24 with NIMs of 8.3-8.4% vs. 8.6% in H1FY24. The bank continues to invest heavily in technology, platform upgradation, and roll-out of new products, thereby keeping Opex growth and Cost Ratios inflated. Asset quality headwinds are now behind and collections across segments continue to remain at normalized levels. Thus, credit costs should be contained at ~1-1.25% in FY24E. EQSFB will eye RoA of ~2% despite near-term headwinds on NIMs and elevated Opex. It will further look to improve it to ~2.25% over the medium term.

Equitas SFB Share Price Target

"We recommend a BUY rating on the stock with a TP of Rs 125, implying an upside of 10% from CMP," said Axis Securities in a report.

Equitas SFB Shareholding Pattern

During Q3FY24, the company recorded promoters' shareholding of 0.00%, FIIs stake of 19.61%, DIIs stake of 45.64% and public stake of 34.74%.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.