Recommendation from a Bank - Private sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.[EasyDNNnews:PaidContentStart]

EQUITAS SMALL FINANCE BANK : SMALL IN SIZE, BIG IN GROWTH

HERE IS WHY
✓Partnering the country’s economic progress
✓Impressive growth in earnings
✓Ambitious plans to expand

India’s banking sector is a strong pillar for its financial and economic growth. The country has introduced innovative models like payments and small finance banks as well as expanded through schemes like Pradhan Mantri Jan Dhan Yojana and post payment banks. The microfinance sector in India is varied with various firms providing low-income people with financial services like lending, insurance and pension. Microfinance organisations, with the exception of non-profit MFIs, are registered as trusts or societies under the regulation imposed by the Reserve Bank of India (RBI).

Almost 50 per cent of people in India lack a simple savings account but microfinance helps individuals with limited resources access to capital to be able to achieve wealth accumulation and risk mitigation goals. Owing to this, our low-price scrip for this issue is Equitas Small Finance Bank Ltd., which is the largest small finance bank in India.

It focuses on serving the financially under-served or non-served customer segments, which include micro, small, and medium enterprises (MSMEs), small businesses and low-income individuals.The bank’s strength lies in its ability to promote financial inclusion within these segments. It offers a range of financial products and services that are tailored to the specific needs of these customers. These products include small business loans, microfinance loans, vehicle loans, MSE loans and corporate loans.

In Q1FY24, on a standalone basis the bank reported a 32.76 per cent rise in total income to ₹1,425.33 crore as compared to ₹1,073.62 crore in the same quarter the previous year, sequentially increasing by 2.22 per cent. The operating profit of the bank increased 16.38 per cent to ₹312.12crore as compared to ₹268.19 crore in the same quarter the previous year while sequentially decreasing by 19.22 per cent.

The net profit of the bank increased by 97.10 per cent to ₹191.20 crore as compared to ₹97.01 crore in the same quarter the previous year and sequentially stood flat. The GNPA improved by 135 bps YoY to 2.60 per cent in Q1FY24 as compared to 3.95 per cent in Q1FY23. NNPA improved by 96 bps YoY to 1.12 per cent in Q1FY24 as compared to 1.14 per cent in Q4FY23 and 2.07 per cent in Q1FY23.

The shares of Equitas Small Finance Bank are trading at a PBV of 1.78x – a shade below the three-year median PBV. The company has maintained a three-year healthy ROE and ROCE of 10.7 per cent and 8.04 per cent, respectively. It has a three-year compounded top-line and bottom-line growth of 16 per cent and 33 per cent, respectively. The bank has a ROA of 2.10 per cent. Equitas Small Finance Bank has made significant progress in various areas, including small business loans, vehicle finance, microfinance and internet banking.

It has launched new branches, improved customer service and introduced a mobile app for asset customers. The bank has also launched an in-house loan office for vehicle finance and a new one for affordable housing. Further, it has invested in a hybrid cloud and onpremise enterprise data warehouse to enhance credit assessment models and cross-selling initiatives. This move towards digitalisation will save costs, improve customer convenience and expand product offerings, ultimately improving profitability and efficiency. Considering all these factors, we recommend BUY.

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