Equitas Small Finance Bank zooms 8% on solid March quarter results

Equitas SFB reported a 58 per cent jump in its net profit for the March quarter at Rs 190 crore, which was the lender's highest-ever profit

Shares of Equitas Small Finance bank soared 7.5 per cent to Rs 78.35 per share in Monday’s intra-day deals on Friday after the lender’s net profit swelled 58 per cent on year in the March quarter of FY23 (Q4FY23). at 9:55 AM, the shares were around 5 per cent higher at Rs 76.4 apiece as against 0.8 per cent rise in the benchmark S&P BSe Sensex. The BSE Bankex index, meanwhile, was up 1.4 per cent.

The bank, after market hours on Friday, reported a 58 per cent jump in net profit for the March quarter at Rs 190 crore, its highest-ever, on the back of betterment of asset quality and expansion of its business.

In a filing with the stock exchanges, Equitas Small Finance Bank said, newer products like housing finance, used car and merchant OD continue to scale-up.

Operationally, Equitas’ operating profit grew around 35 per cent YoY with flat provisions on a yearly basis. Net Interest Income (NII) growth of 30 per cent YoY and proceeds from the sale of written-off loans to ARC drove strong revenue performance, while operating

expenses were up 35 per cent YoY, driven by employee additions. 

Reported net interest margin (NIM) was marginally up sequentially, primarily driven by lower interest reversals from slippages, as yield on advances was flat QoQ, while cost of funds increased ~20 bps QoQ.

The growth in advances (35 per cent YoY/12 per cent QoQ) was broad-based with small business loans up ~35 per cent YoY, vehicle finance 38 per cent YoY, and microfinance 35 per cent YoY, indicating focus on growth across all verticals. 

Deposit growth was strong as well, at roughly around 35 per cent YoY/ 8 per cent QoQ. 

While Covid had impacted the bank’s loan portfolio through a very high share of customers under moratorium and restructuring, the bank has been able to contain credit costs fairly well (average of 2.0 per cent in the past four years). The broader improvement in the trend on delinquencies and net slippages provided comfort on asset quality hereon. Credit cost for the quarter stood at ~200 bps (annualized), primarily due to an improvement in PCR. 

“We retain ADD rating with a revised Fair Value of Rs77 (Rs 68 earlier). At our FV, we are valuing the bank at 1.2X book (adjusted) and 8X March 2025E EPS for mid-teen RoEs in the medium term. We continue to build in a steady recovery in return ratios, driven primarily by lower credit costs and operating costs in the medium term. Contained slippages and steady broad-based credit growth should drive further improvement in the bank’s earnings profile, said Kotak Institutional Equities in a report.