MOSL: EQUITAS HOLDINGS (Buy)-Advances growth picks up; provisions keep sequential PAT growth muted

Equitas Holdings: Advances growth picks up; provisions keep sequential PAT growth muted

(EQUITAS IN, Mkt Cap USD0.7b, CMP INR139, TP INR175, 26% Upside, Buy)

• Operating expenses stabilizing: Equitas reported PPoP growth of 13%/6% QoQ/YoY to INR760m – PSLC fees were recognized upfront in 1QFY18 but amortized in 1QFY19 due to Ind-AS adoption by the holding company; 1.85x YoY PPoP growth on a like-for-like basis. Growth was driven by cost control, with cost to assets declining to a multi-quarter low of 6.8% (40bp QoQ decline even with bonus payouts in 1Q). Total income grew 8%/6% QoQ/YoY on a like-for-like basis (NII growth of 18% YoY; other income growth of 41% QoQ, driven by higher share of liability fees). Provisions were higher than expected at INR209m (1.2% credit cost v/s 0.8% in 4Q), as the company chose to increase PCR to 38.9% from 38.5% in 4Q.
• Balance sheet de-risking continues: In keeping with its goal of taking down the microfinance proportion of loan book, microfinance AUMs declined further to 27% of total v/s 28% in 4QFY18. However, reversing the trend, MF AUMs grew 6% QoQ (-18% YoY) on an absolute basis to INR24.3b, while non-MF AUM grew 9%/59% QoQ/YoY to INR65b, led by 12%/70% QoQ/YoY growth in property finance. Unsecured AUM declined to 32% v/s 47% in FY17, with robust growth in secured lending products such as UCV (+6%/+22% QoQ/YoY) and property finance.