Equitas SFB shares a buy post 27% fall from 52-week high? Here's target price
Equitas SFB's recent stock price correction was triggered by an increased stress in MFI portfolio, the management commentary on the quality of MFI book and earnings miss on account of the NIM disappointment and floating provisions.
- Aug 21, 2024,
- Updated Aug 21, 2024 9:14 AM IST
Equitas Small Finance Bank Ltd (Equitas SFB) has seen its shares tumbling 27 per cent from January high of Rs 116.50. If one were to go by Antique Stock Broking, this steep fall has turned risk-reward favourable on the counter.
The domestic brokerage blames Equitas SFB's recent stock price correction to an increase in stress in Equitas SFB's MFI portfolio, the management commentary with respect to the near-term uncertainty in the quality of MFI book, earnings miss on account of the net interest margin (NIM) disappointment and floating provisions of Rs 180 crore to build PCR above 70 per cent, and bringing down the net non-performing loans below 1 per cent.
"But the point to note is that as we adjust for floating provisions, credit cost would have increased by just 20 bps QoQ to 1.6 per cent against 1.4 per cent and RoA would have been around 1.5 per cent. Notably, the MFI portfolio is just 17 per cent of overall loans and the current impact of the stress is mainly focused on the P&L," Antique Stock Broking said.
The broking firm's conversation with the management suggested there are signs of improvement in other segments. Any positive surprise on asset quality in the MFI segment could, therefore, lead to a re-rating, Antique said.
"The liability side is much better as compared to the past, AUM is diversified, and Tier I is healthy at 20 per cent. Therefore, even after taking into account the near-term challenges, we believe that risk-reward is significantly in favour and we retain BUY with an unchanged target price of Rs 110 (1.6 times 1HFY27 BV)," it said.
Equitas SFB, Antique said, is still well-positioned with regards to the MFI book being curtailed to 17 per cent of the overall book.
"Growth in other segments remain strong and with its liability profile improving, the negative impact of higher liquidity on P&L has already taken place. Hence, after the stock taking a beating of 25 per cent over the last two months, we believe the current valuation of 1.3 times FY26 BV and 1.1 times FY27 BV for an expected RoA of 1.8 per cent and RoE of 16-18 per cent is very reasonable. Therefore, maintain BUY," it said.
Equitas Small Finance Bank Ltd (Equitas SFB) has seen its shares tumbling 27 per cent from January high of Rs 116.50. If one were to go by Antique Stock Broking, this steep fall has turned risk-reward favourable on the counter.
The domestic brokerage blames Equitas SFB's recent stock price correction to an increase in stress in Equitas SFB's MFI portfolio, the management commentary with respect to the near-term uncertainty in the quality of MFI book, earnings miss on account of the net interest margin (NIM) disappointment and floating provisions of Rs 180 crore to build PCR above 70 per cent, and bringing down the net non-performing loans below 1 per cent.
"But the point to note is that as we adjust for floating provisions, credit cost would have increased by just 20 bps QoQ to 1.6 per cent against 1.4 per cent and RoA would have been around 1.5 per cent. Notably, the MFI portfolio is just 17 per cent of overall loans and the current impact of the stress is mainly focused on the P&L," Antique Stock Broking said.
The broking firm's conversation with the management suggested there are signs of improvement in other segments. Any positive surprise on asset quality in the MFI segment could, therefore, lead to a re-rating, Antique said.
"The liability side is much better as compared to the past, AUM is diversified, and Tier I is healthy at 20 per cent. Therefore, even after taking into account the near-term challenges, we believe that risk-reward is significantly in favour and we retain BUY with an unchanged target price of Rs 110 (1.6 times 1HFY27 BV)," it said.
Equitas SFB, Antique said, is still well-positioned with regards to the MFI book being curtailed to 17 per cent of the overall book.
"Growth in other segments remain strong and with its liability profile improving, the negative impact of higher liquidity on P&L has already taken place. Hence, after the stock taking a beating of 25 per cent over the last two months, we believe the current valuation of 1.3 times FY26 BV and 1.1 times FY27 BV for an expected RoA of 1.8 per cent and RoE of 16-18 per cent is very reasonable. Therefore, maintain BUY," it said.