Revise to ‘buy’ on Equitas Holdings, with target of Rs 240

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Published: October 25, 2016 6:14:55 AM

PAT grew 16% y-o-y to `464 million (15% beat). This is the first quarter of reporting post the company’s conversion into a small finance bank (SFB).

PAT grew 16% y-o-y to `464 million (15% beat). This is the first quarter of reporting post the company’s conversion into a small finance bank (SFB). Earnings include one-off post-tax expense of `134 million due to transition to SFB. One-off expenses related to excess liquidity for CRR and SLR, and pre-closure of term loans were factored in our estimates. Additional NPA provision of `381 million was being netted off against `379 million of standard asset provision reversal. However, due to lack of clarity, we had not factored in higher NPA provisions for transition to SFB.

NII grew 40% y-o-y (5% beat; flat q-o-q), led by 45% y-o-y (8% q-o-q) AUM growth to RS 70.8 billion. NIM declined 230bp q-o-q to 10%, impacted by excess liquidity for compliance with CRR and SLR requirements, and pre-closure penalty for bank loans.

Share of off-balance-sheet AUM grew to 20% from 13% in 1QFY17; lower onbalance- sheet exposure would have reduced CRR and SLR requirements. Healthy disbursement growth of 11% q-o-q and 28% y-o-y was driven by vehicle (+21%/55% q-o-q/y-o-y; 28% of overall) and MSE (+15%/38% q-o-q/y-o-y; 16% of overall) loans.

On the back of impressive performance on cost and margins, our earnings estimates have seen 20%+ upgrade. We roll over the target price to September 2018 and revise our rating to buy from neutral. Our revised target price is Rs 240 (`220 earlier) based on RI model.

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