Report
Nitin Aggarwal
EUR 120.00 For Business Accounts Only

MOSL: EQUITAS HOLDINGS (Buy)-Modest quarter-growth trajectory to moderate slightly

EQUITAS HOLDINGS: Modest quarter; growth trajectory to moderate slightly

(EQUITAS IN, Mkt Cap USD0.5b, CMP INR104, TP INR140, 35% Upside, Buy)

 

  • Lower other income, higher provisions lead to PAT miss: EQUITAS reported PAT of INR619m (+75% YoY), missing our estimate by 15% due to lower other income and higher provisions. Other income declined 6% YoY to INR578m on account of lower fees, as the bank did not sell any PSLC certificates in the quarter.
  • PPoP increased 65% YoY, led by 35% YoY growth in NII (INR3.4b; in-line). Lending spreads/NIM shrank ~20bp/25bp QoQ to 10.5%/8.6%, as the cost of funds increased 10bp QoQ. Total opex increased 15% YoY to INR2.8b, mainly led by higher staff expense (+21% YoY). Cost-income ratio, thus, remained elevated at 68.6% (+10bp QoQ). Cost-to-asset ratio declined ~55bp QoQ to 6.7%.
  • Balance sheet de-risking continues: Total AUM grew 38%/4% YoY/QoQ to INR123.5b, with the share of MFI AUM at 25.3% v/s 27.2% in 1QFY19. On an absolute basis, MFI AUM was up 28% YoY to INR31.2b. Non-MFI AUM increased 42%/5% YoY/QoQ to INR92.3b, led by 52%/28% YoY growth in small business loans/vehicle finance. Vehicle finance portfolio now constitutes 24.6% of total AUM. Disbursements grew by a tepid 5.4% YoY, as rejection rates in certain geographies increased and the bank defocused on unsecured business loans.
  • Deposit accretion remains healthy: Deposits increased 52%/8% YoY/QoQ to INR86.7b, led by 12% QoQ growth in TD. CASA deposits declined 2% QoQ to INR22.3b, resulting in a CASA ratio of 25.8% (v/s 28.3% in 4QFY19), as ~INR1.8b of CASA deposits moved to retail TD. This resulted in a 10bp QoQ increase in the cost of funds to 7.9%
  • GNPA/NNPA increased 13%/12% QoQ to ~INR3.3b/INR1.8b. Fresh slippages stood at INR0.8b, driving ~25bp QoQ rise in the GNPA/NNPA ratios to 2.8%/1.7%. Management is running down the unsecured loan portfolio, and thus, guided for an uptick in the GNPA ratio in that segment. The bank made higher provisions, resulting in ~70bp QoQ improvement in PCR to 44.1%.
  • Other highlights: (1) Capitalization levels stood strong at 21.5% (-95bp QoQ). (2) Deposits as % of total borrowings stand at a healthy 63.3%. (3) Listing update: Management is awaiting the SEBI's approval, which may take 5-6 months; it has also approached the RBI to seek an extension in the listing timeline.
  • Valuation and view: EQUITAS is progressing well on its goal of balance sheet de-risking and reporting healthy growth in secured products. The recalibration in the growth strategy away from unsecured loans is likely to provide benefits over the medium-to-long term, but could exert pressure on near-term growth. We cut our PAT estimate by 8% for FY20/21 to factor in lower fee income and higher provisions. We reiterate our Buy rating on the stock with a target price of INR140, based on 1.7x Mar'21E ABV of INR85 per share. The listing of SFB and the ongoing approval process from the SEBI remain could pose near-term overhang, in our view.
Underlying
Equitas Holdings

Equitas Holdings Limited (EHL) is the holding company. The Company is engages in the businesses through its subsidiaries: Equitas Micro Finance Limited (EMFL), which is engaged in micro finance; Equitas Finance Limited (EFL), which provides used commercial vehicle (UCV) loans, micro and small and enterprise (MSE) finance, and others; Equitas Housing Finance Limited (EHFL), which is engaged in affordable housing loans and micro housing loans, and Equitas Technology Private Limited (ETPL), which offers technology platform for freight, logistics, carriers and related services. The Company's segments include Micro Finance, Other Finance and Others. The Micro Finance segment consists of micro financing. The Other Finance segment consists of housing finance and vehicle finance. The Company also provides loans to subsidiaries and corporate guarantees for the borrowings of subsidiaries from banks and institutions.

Provider
Motilal Oswal
Motilal Oswal

​Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance. 

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

Analysts
Nitin Aggarwal

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