Equitas SFB shares tank 17% as CEO exit mars Q2 show, down 27% in 2 days

Despite the improving return profile, analysts cautioned that the uncertainty around CEO succession remains and could keep Equitas SFB stock under pressure.

Equitas SFB share price: Shares of Equitas Small Finance Bank (SFB) extended their selloff to the second day on Friday as the sudden exit of its CEO and MD eclipsed the lender's strong operational performance. 

 

After closing with a 12 per cent cut in the last trading session, Equitas SFB shares plunged another 17 per cent today to slip below ₹50 apiece, taking its two-day fall to over 27 per cent. 

 

On BSE, the small finance bank's stock hit the day's low of ₹49 amid higher-than-usual volumes. A combined 39 million shares of the lender had changed hands as of 9.37 AM. The stock was trading 10.21 per cent lower at ₹51.17 apiece at the last check, while the BSE barometer Sensex was up 0.22 per cent at 74,327. 

 

 

Despite the improving return profile, analysts cautioned that the uncertainty around the CEO succession remains, which could keep the stock under pressure. 

 

P N Vasudevan resigned on Thursday, barely three months after his tenure was extended by the board until July 2029, citing persistent investor concerns over a perceived conflict of interest arising from his daughter’s association with a non-banking financial company (NBFC). READ MORE

 

The bank expects to find a replacement within three months.

 

Elara Capital said that Equitas' priority is a smooth transition, which is a monitorable and near-term overhang as limited internal bench strength raises the likelihood of an external candidate. Meanwhile, the lender may continue to post an improvement in broader earnings and return metrics, it added.

 

Supported by healthy other income and lower-than-expected provisions, Equitas SFB beat expectations as it reported its highest-ever profit of ₹218 crore, up 803 per cent year-on-year (YoY) and 19 per cent quarter-on-quarter (QoQ). 

 

The management also raised its FY27 advances growth guidance to 25 per cent+ from 20 per cent+ and upgraded its FY27 ROA guidance to 1.35 per cent from 1.20 per cent, while continuously targeting an exit ROA of ~1.5 per cent in Q4FY27.

 

Margin pressure was visible as net interest margin (NIM) for Q2FY27 stood at 6.69 per cent, down 55 bps QoQ. "The cost of funds rose 7bps due to the full-quarter impact of Q1FY27 deposit rate hikes, with a further 8-10bps increase expected in H2FY27, alongside repo rate hike risks. Excess FCNR(B) liquidity also weighed on NIM," observed Elara analysts. 

 

While management expects an 18-20 bps NIM recovery to 7 per cent in Q4 FY27, Elara has a more conservative view as it expects the rebound to be gradual. 

 

Nirmal Bang, on the other hand, noted that it expects healthy loan growth to remain of ~25 per cent in FY27 to drive NIM by ~20bps over the next two quarters as surplus liquidity is deployed. Sustained fee income growth and operating leverage should

further support profitability, partly offset by a normalisation in credit costs in 2HFY27, it added. CHECK Stock Market LIVE Updates 

Should you buy, sell or hold Equitas SFB shares?

The underlying environment is improving on both asset quality and business growth front, said Elara Capital, adding that business mix changes and liabilities pressure have put NIMs at a disadvantage, although rate hike cycle will benefit to some extent.

 

Furthermore, a sharp correction in the stock has prompted the brokerage to recommend a 'BUY' rating with a target price of ₹77.

 

On a similar note, Nirmal Bang also maintained a 'BUY' call but lowered the target price to ₹75 (earlier ₹85), based on 1.0x Sep28E adjusted book value. Despite the improving return profile, our valuation multiple remains conservative, reflecting uncertainty around the CEO succession, it observed.

 

Another domestic brokerage, Motilal Oswal Financial Services (MOFSL), maintained its positive view on Equitas SFB shares, and raised its earnings expectations by 8 per cent and 2.5 per cent in FY27 and FY28, respectively and estimate RoA/RoE of 1.3 per cent and 14.8 per cent by FY28E. It has a target of ₹75.  

 

Delay in the appointment of the new MD and restricted asset quality improvements given emerging risks in select geographies are among the key risks, according to brokerages.

 

Disclaimer: Views and outlook in this report belong to the brokerages and analysts cited. They do not reflect the views of Business Standard. Readers are advised to exercise discretion.