We initiate coverage on Equitas Holdings (EQUITAS), a 100% holding company of Equitas Microfinance (EMFL), Equitas Finance (EFL) and Equitas Housing Finance (EHFL), with neutral rating and
target price of R220 (3x FY18E BV).
We like EQUITAS for (a) Significant growth opportunity in underpenetrated market, (b) Credible management team and (c) Healthy return ratios (sustainable 1.8%+ RoA/18%+ RoE).
The stock has delivered 82% return since listing. In the last three months it has outperformed the benchmark by 38%. Better-than-expected margin performance, smooth transition to SFB and higher growth may provide upside to our estimate.
Over last five years, EQUITAS recorded a CAGR of 50% in AUM, led by strong traction in MFI business (33% CAGR) and commencement of new business lines.
Given the deep under penetration in its key areas of operations, we expect EQUITAS to record CAGR of 36% in AUM over FY16-21E, led by increasing share of non-MFI business (62% vs. 46% in FY16).
