MOSL: EQUITAS HOLDINGS (Buy)-Balance sheet de-risking continues-MF book clean-up leads to a loss

Equitas Holdings: Balance sheet de-risking continues; MF book clean-up leads to a loss

(EQUITAS IN, Mkt Cap USD0.8b, CMP INR151, TP INR205, 36% Upside, Buy)

• Equitas (EQUITAS) reported a loss of INR300m, as the bank chose to provide completely on its delinquent microfinance (MF) book, increasing the coverage ratio on the latter to 96%. PPoP declined 7% QoQ, as total income (INR2.7b) growth of 4% QoQ lagged opex growth of 6% QoQ (INR2.3b). The bank provided a total of INR869m during the quarter (INR700m toward MF book), effectively up-fronting all credit costs on the same.
• Balance sheet de-risking continues: In line with the goal of diversifying the loan book, microfinance AUMs fell to 32% of total v/s 36% in 2QFY18, as MF AUM declined 6.6% QoQ to INR24.7b, while vehicle finance and M-LAP/LAP AUMs grew 4.2% and 11.5% QoQ, respectively. Total AUM/loan book grew 7.5%/22.2% YoY (securitized book share fell to 6.8%). Unsecured AUMs fell to 36% v/s 39% in 2Q, with robust growth in secured lending products.
• Asset quality improves with microfinance book clean-up: Total GNPA declined 3.8% QoQ to INR3.6b, with absolute GNPA in the non-MF book declining 12% QoQ to INR2.03b (PCR 37%), and the non-MF GNPA ratio declining 119bp QoQ to 4.11%. Absolute MF GNPA increased 7% QoQ, but with accelerated provisioning of INR700m, MF NNPA stood at a negligible INR60m. Total GNPA/NNPA ratios (including floating provisions) stood at 4.95%/1.62% (-81bp/-118bp QoQ).