Equitas Small Finance Bank shares fall 5% on Q1 loss; more downside ahead?

Equitas Small Finance Bank (SFB) on Monday hit its lower circuit limit on weaker-than-expected June quarter results, thanks to the impact of revised provisioning norms, an additional standard asset provision on the microfinance portfolio and elevated net slippages. Stock analysts have cut their valuation multiples and price targets for the stock, which suggest flat-to-40 per cent upside potential on the counter.  

Centrum Broking said FY26 has begun on a soft note for Equitas SFB, with MFI (9 per cent of advances) and SBL (45 per cent of advances) emerging as the main drags. While July’s moderation in slippages was encouraging, past experience (March 2025) shows that one-month recoveries can fade quickly, warranting caution. 

"On the positive side, the bank has built substantial upfront provisioning buffers, which, while weighing on near-term earnings, could support profitability if asset quality holds. In terms of bright spots, the VF portfolio (25 per cent of advances) has delivered strong growth and asset quality, with a strategic tilt toward used CV and PV at the expense of new CV. In microfinance, disbursements have cautiously resumed, balancing the longer-term objective of lowering the segment’s share in advances with the shorter-term focus on improving collections, Centrum said.

This brokerage suggested 'Buy' rating with a revised target price of Rs 75. On Monday, the scrip was locked at its 5 per cent circuit limit at Rs 53.48 apiece.   

ICICI Securities said Equitas's was  the first ever loss since 2008. While collection efficiency (CE) improved in July, the management highlighted that it shall continue strengthening the balance sheet by up-fronting provision for the rest of FY26, the brokerage said adding that the move should result in higher credit cost in FY26 against 3.4 per cent in FY25.

"Overall, credit growth remained muted at 8 per cent YoY; however, ex-MFI, the portfolio grew by 18 per cent YoY and management highlighted that it shall continue focusing on scaling the non-MFI book. We downgrade to HOLD (from Add) with a revised target of Rs 57 (against Rs 75), based on 1x on Sep’26E (vs. 1.25x) given subdued profitability in the near term," ICICI Securities said.

Factoring in the sharp cut in earnings and continued stress, Emkay Global retained 'Reduce' on Equitas SFB. It cut its target price to  Rs 55, valuing the bank at 1 time Jun-27E ABV. 

The management guided for AUM growth of 15-16 per cent in FY26. Credit cost for the quarter (adjusted for one-off) increased from 2.9 per cent to 3.2 per cent QoQ and gross slippage ratio increased from 7.2 per cent to 8.3 per cent QoQ. 

"Overall, 1-90 DPD portfolio increased from 7.9% to 9.5 per cent QoQ which has come down to 9.1 per cent in July 2025. We reduce our FY26/ 27 estimates by 43 per cent/ 9 per cent respectively to factor in the one-time provisioning impact and maintain BUY with a revised target of Rs 73 against Rs 93 earlier), valuing the stock at 1.1x 1HFY28 BV.