MOSL: EQUITAS HOLDINGS (Buy)-Balance sheet de-risking continues-opex moderation leads to PAT beat

​Equitas Holdings: Balance sheet de-risking continues; opex moderation leads to PAT beat

(EQUITAS IN, Mkt Cap USD0.9b, CMP INR145, TP INR209, 44% Upside, Buy)

• Operating expenses start stabilizing: Reported PPoP declined 36%/50% QoQ/YoY (INR445m, 40% beat) due to 58% sequentially lower other income (1Q included INR600m of PSLC fees). With branch expansion and employee addition stabilizing, expenses moderated (-4% QoQ; 4% beat), leading to PPoP beat. Reported PAT of INR109m beat estimates by 88%, even with provisions missing estimates by 18%. Bulk of provisions were on account of increased PCR (41%, up from 37% in 1Q) on non-MF portfolio GNPAs (INR2.3b, +28% QoQ), implying INR280m of incremental provisions on this portfolio.
• Balance sheet de-risking continues: In line with the goal of diversifying the loan book, microfinance AUM decreased to 36% of total v/s 42% in 1QFY18, as microfinance disbursements stayed sequentially flat, while non-MF portfolio disbursements jumped 48% QoQ. Total AUM/loan book grew 3.5%/13.6% YoY (securitized book share decreased to 12.3%). Unsecured AUMs decreased to 39% v/s 44% in 1Q, with robust growth in secured lending products, UCV (+6%/+17% QoQ/YoY) and M-LAP (+11%/+26% QoQ/YoY).
• Asset quality deteriorated but PCR held strong: Total GNPA increased 23% QoQ to INR3.7b, but PCR stayed stable at 51%, with the GNPA/NNPA ratios at 5.76%/3.1% (2.8% incl. floating provisions of INR190m). GNPA in microfinance spiked to 6.72% (4.99% in 1Q, +190m QoQ), while that in non-MF book increased to 5.3% (4.85% in 1Q, +510m QOQ). PCR on MF/non-MF portfolio stood at 54%/41% (vs. 58%/37% in 1Q). Total portfolio at risk (PAR) > 0 in MF stood at INR2.1b, of which the 'on-book' PAR was INR1.76b (INR1.71b in 1Q).