Equitas Small Finance Bank Q3 Review - RoA Sustains At ~2% For Fifth Consecutive Quarter: ICICI Securities

ICICI Securities Report

Equitas Small Finance Bank Ltd.'s sustained its earning trajectory with an return of assets of ~2% for the fifth consecutive quarter despite credit cost normalising to 100 basis points versus 80 bps QoQ led by higher slippages due to Tamil Nadu floods, which impacted the vehicle finance and micro finance Institutions portfolio.

Management believes the rise in credit cost during Q3 FY24 is transitory and portfolio quality continued to be robust – it maintains full year FY24 credit cost guidance at 120 bps.

While net interest margin fell by 6 bps to 8.37% in Q3 FY24 due to its intent to improve liquidity by increasing CD ratio (improved to 91.5% in December 2023 versus 94.5% QoQ), management indicated that higher share of fixed rate book (greater then 65%) augurs well in the near term, considering likely rate reversal in H2 FY25.

Higher disbursement yields, at 18.8% versus blended yield of 17.6% in Q3 FY24, provided comfort on NIM improvement in the near term as cost of funds starts to flatten out.

Maintain 'Add'; revised target price to Rs 120 (from Rs 110), rolling over to September 2025E book value per share, valuing the stock at 1.8 times.

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