EUR 120.00 For Business Accounts Only

MOSL: EQUITAS HOLDINGS (Buy)-Business growth healthy; Margin trajectory improving

Equitas Holdings: Business growth healthy; Margin trajectory improving

(EQUITAS IN, Mkt Cap USD0.5b, CMP INR114, TP INR135, 19% Upside, Buy)

 

Listing of SFB business remains a key overhang

• Equitas' 3QFY20 performance was healthy across, supported by higher other income and lower provisions. Business growth was strong while operating performance too remained healthy (NII, margins, C/I, PPoP). However, the listing of SFB remains a near-term overhang; it is pending SEBI approval and is likely to get completed by Mar'20.
• We have increased our EPS estimates for FY20/FY21 by 8%/5%, as we factor in improvement in margins. Maintain Buy. 

Higher other income leads PAT beat; Asset quality largely stable

• Reported PAT grew 51% YoY to INR941m (v/s est. INR642m), led by higher other income of INR857m (+34% QoQ - PSLC income of INR138m) and lower provisions of INR405m (-10% QoQ). NII grew 23% YoY to INR3.8b (5% beat) as lending spreads/NIMs improved 55bp/34bp QoQ to 10.7%/9.2%, led by 53bp QoQ decline in cost of funds.
• Total opex increased 19% YoY to INR3.1b, led by 38% YoY growth in staff expense. Cost-income ratio, thus, declined to 66.2% (-280bp QoQ) while PPoP stood at INR1.6b (+30% YoY).
• Total AUM grew 37% YoY/11% QoQ to INR146.1b, with the share of MFI AUM at 24% (v/s ~28% in 3QFY19). MFI AUM grew 19% YoY to INR35b while growth in non-MFI AUM was robust at 44% YoY/11% QoQ to INR111.1b, led  by 45%/32% YoY growth in small business loans/ vehicle finance.
• Deposits grew 33% YoY to INR104.9b, led by 41% YoY/7% QoQ growth in TD. CASA deposits grew 9% YoY/-2.4% QoQ to INR21.9b, resulting in CASA ratio moderating to 20.9% (v/s 22.4% in 2QFY20).
• Absolute GNPA/NNPA increased 11% QoQ each to INR4.2b/INR2.4b. Fresh slippages stood at INR1.3b while reductions stood at INR0.9b, resulting in stable GNPA ratio at 2.86%; NNPA ratio declined 10bp QoQ to 1.73%. PCR, thus, declined ~30bp QoQ to 43.5%.