Target: ₹77
CMP: ₹75.53
We attended Equitas Small Finance Bank’s analyst day, and management commentary indicates that the bank is entering the next phase of its evolution after several years of portfolio diversification, liability franchise build-up and technological investments.
The transformation of the loan book is the most important takeaway from the analyst day. MFI exposure has reduced from over 50 per cent at the time of bank conversion in FY17 to about 10 per cent currently, whereas secured portfolio has increased to around 88 per cent. Growth is increasingly driven by SBL, affordable housing, vehicle finance and gold loans.
Management expects further gains from current accounts, affluent banking, NRI banking and cross-sell initiatives while technological investments and AI-led processes should support operating leverage. However, deposit mobilisation remains the most critical execution variable as sustaining about 20 per cent loan growth and achieving management’s profitability aspirations will require continued improvement in liability productivity and funding costs.
That said, deposit mobilisation and execution on profitability targets are the key areas to monitor. We are increasing FY27E/28E EPS by +4/5 per cent and the target FY28E P/BV to 1.2x (from 1x), yielding a revised TP of ₹77 (earlier ₹65). We are, hence, upgrading Equitas to Add (from Reduce)