Equitas SFB shares: 2nd quarter of elevated provisions! Here is target price
Equitas SFB: The management indicated that the credit cost of non-microfinance portfolio, constituting around 84 per cent of total advances, stood at 1.04 per cent in 1HFY25 and is expected to improve further in H2FY25.
- Nov 11, 2024,
- Updated Nov 11, 2024 8:04 AM IST
Nirmal Bang Institutional Equities values Equitas Small Finance Bank Ltd at 21 per cent discount to the past 5-year average price to adjusted book value multiple of 1.5 times. It has cut its target rating on the stock to 'Hold' from 'Buy' with a revised target price of Rs 77 from Rs 92 earlier. The scrip closed at Rs 68.68 on Friday. Nirmal Bang's target suggests 12 per cent potential upside over this price.
During the quarter, the SFB witnessed stress building up in the micro finance portfolio, with credit cost in micro finance segment including additional provision buffer coming in at 10.18 per cent in Q2. Add to that the bank expects the pain in the segment to continue over the next two quarters.
On the positive side, Nirmal Bang said the banks’ composition of borrower having exposure of less than Rs 1.5 lakh constituted around 81 per cent and, only 14.5 per cent of the borrowers have borrowed loan from more than 4 lenders, which indicated that even though there is stress in the industry as a whole, the stress level for the bank is expected to be lower as compared to the industry, the brokerage said.
"In micro finance book (as of June 2024), the 31-60 DPD book for Equitas stood at around 1.05 per cent against 1.13 per cent for the industry) while 61-90 DPD book stood around 1.27 per cent against 1.19 per cent for the industry) and 91-180 DPD stood at around 1.37 per cent against 1.43 per cent for industry)," Nirmal Bang said.
It said gross NPAs for the bank deteriorated further to 2.95 per cent in Q2FY25 from 2.73 per cent in Q1. The Equitas SFB has made an extra provision of Rs 146 crore in the microfinance segment during the quarter, comprising of Rs 100 crore as provision for stressed sector provision that translates to around 50 per cent of 31-90 DPD in microfinance. Besides, it made provision of Rs 46 crore towards strengthening the IRAC norms for microfinance NPA book.
The management indicated that the credit cost of non-microfinance portfolio, constituting around 84 per cent of total advances, stood at 1.04 per cent in 1HFY25 and is expected to improve further in H2FY25.
"There are some old NPA accounts which are leading to the elevated NPA. Otherwise, the recently originated book (over last 2-3 years) is performing quite well with no credit quality concern," Nirmal Bang said.
The brokerage estimated Equitas SFB's earnings CAGR at 18.5 per cent over FY24-FY27E based on loan CAGR of 20 per cent, lower margins and higher credit cost. This results in return on asset of 0.9 per cent in FY25, 1.6 per cent in FY26 and 1.9 per cent in FY27 against FY24's 2 per cent.
Nirmal Bang Institutional Equities values Equitas Small Finance Bank Ltd at 21 per cent discount to the past 5-year average price to adjusted book value multiple of 1.5 times. It has cut its target rating on the stock to 'Hold' from 'Buy' with a revised target price of Rs 77 from Rs 92 earlier. The scrip closed at Rs 68.68 on Friday. Nirmal Bang's target suggests 12 per cent potential upside over this price.
During the quarter, the SFB witnessed stress building up in the micro finance portfolio, with credit cost in micro finance segment including additional provision buffer coming in at 10.18 per cent in Q2. Add to that the bank expects the pain in the segment to continue over the next two quarters.
On the positive side, Nirmal Bang said the banks’ composition of borrower having exposure of less than Rs 1.5 lakh constituted around 81 per cent and, only 14.5 per cent of the borrowers have borrowed loan from more than 4 lenders, which indicated that even though there is stress in the industry as a whole, the stress level for the bank is expected to be lower as compared to the industry, the brokerage said.
"In micro finance book (as of June 2024), the 31-60 DPD book for Equitas stood at around 1.05 per cent against 1.13 per cent for the industry) while 61-90 DPD book stood around 1.27 per cent against 1.19 per cent for the industry) and 91-180 DPD stood at around 1.37 per cent against 1.43 per cent for industry)," Nirmal Bang said.
It said gross NPAs for the bank deteriorated further to 2.95 per cent in Q2FY25 from 2.73 per cent in Q1. The Equitas SFB has made an extra provision of Rs 146 crore in the microfinance segment during the quarter, comprising of Rs 100 crore as provision for stressed sector provision that translates to around 50 per cent of 31-90 DPD in microfinance. Besides, it made provision of Rs 46 crore towards strengthening the IRAC norms for microfinance NPA book.
The management indicated that the credit cost of non-microfinance portfolio, constituting around 84 per cent of total advances, stood at 1.04 per cent in 1HFY25 and is expected to improve further in H2FY25.
"There are some old NPA accounts which are leading to the elevated NPA. Otherwise, the recently originated book (over last 2-3 years) is performing quite well with no credit quality concern," Nirmal Bang said.
The brokerage estimated Equitas SFB's earnings CAGR at 18.5 per cent over FY24-FY27E based on loan CAGR of 20 per cent, lower margins and higher credit cost. This results in return on asset of 0.9 per cent in FY25, 1.6 per cent in FY26 and 1.9 per cent in FY27 against FY24's 2 per cent.