16th August, 2022

INITIATING COVERAGE

Retail Equity Research

Equitas Small Finance Bank Ltd Buy
Banking 12Months Investment Period Rating as per Smallcap

BSE CODE : 543243 NSE CODE: EQUITASBNK CMP Rs. 43 TARGET Rs. 52 RETURN 20%
BLOOMBERG CODE: EQUITASB SENSEX : 59,463 (Closing: 12-08-22)

Company Data
Well crafted for growth among small finance banks
Market Cap (Rs. cr) 5,413.8
Equitas Small Finance Bank (ESFBL) is the second-largest SFB in India
in terms of total advances as on FY22. Locating across 17 states and Outstanding Shares (Rs. cr) 125.3
UTs, ESFBL serves through 869 banking outlets. Free Float 25.5
• Loan book has witnessed a CAGR of 18% during FY19-22 through Dividend Yield NA
25% growth in non-micro finance segments. With recovering 52 week high (Rs.) 71.3
economic activities, we anticipate a 20% growth over FY22-FY24E. 52 week low (Rs.) 37.5
• ESFBL has posted robust retail deposit growth with the CASA mix 6m average volume (cr) 0.1
improving significantly from 20.5% in FY20 to 52.0% in FY22. We Beta 1.0
expect CASA ratio to be at 55% by FY24, aiding a lower cost of fund.
Face value (Rs.) 10.0
• GNPA/NNPA stands at 4.0%/2.1% as on Q1FY23. Standard
Shareholding (%) Q3FY22 Q4FY22 Q1FY23
Restructured book stands at Rs.410cr which is 1.9% of the total
book. Asset quality is expected to improve gradually over coming Promoters 81.4 74.6 74.5
quarters supported by improved collections. FII’s 0.7 3.6 4.1
MFs/Insti
• Proposed reverse merger with its parent, Equitas Holdings, at a 12.8 15.7 15.6
swap ratio of 100:231 by March 2023, will assist the bank to Public/Others 5.1 5.1 5.8
comply with the RBI regulations on promoter holdings. Total 100.0 100.0 100.0

• We initiate coverage on ESFBL by valuing at 1.35x FY24E Adj P/B Price Performance 3 month 6 Month 1 Year
with a target of Rs. 52 and recommend BUY rating considering Absolute Return -19.1% -16.8% -29.3%
better profit growth and improvement in ROA. Absolute Sensex -3.0% -3.8% 5.1%
Relative Return -16.1% -13.0% -34.4%
Well diversified loan book *over or under performance to benchmark
ESFBL has been able to diversify it’s loan portfolio by reducing dependence
90 Equitas Sensex Rebased
on microfinance business as compared to other SFBs. Bank is targeting to
80
reduce the exposure in micro-finance business to 15% which currently
70
stands at 19%. We expect advances to grow at a CAGR of 20% during FY22-
24 with micro finance growing at 13% and non-micro finance segment 60
growing at 21%. 50

Advancing CASA mix and liability profile 40

30
ESFBL has a strong liability profile with CASA ratio of 52% and term
Aug 21 Nov 21 Feb 22 May 22 Aug 22
deposit inclining to safer retail deposits (Retail term deposit at 78% of total
term deposit). During FY22, the bank has registered 15.6% YoY growth in Standalone (cr) FY22A FY23E FY24E
total deposits with savings deposit growing at 78.3% YoY and current
NII 2,039 2,355 2,816
deposit at 48.5%, while term deposit registered a de-growth of 15.0%. CASA
ratio improved from 20.5% in FY20 to 52.0% in FY22 leading to reduced Growth(%) 13.4 15.5 19.6
cost of funds. CASA mix is expected to improve further to 55% by FY24 due NIM(%) 8.1 8.3 8.3
to banks' strong distribution presence and products offering. Provisions 494 430 362
Strong capital base and improving asset quality
Adj. PAT 281 416 656
The bank is well capitalized as capital adequacy ratio stood at 21.9% as on
Growth(%) -26.9 48.2 57.7
FY22 which is more than the RBI prescribed limit of 15% for small finance
banks. Current GNPA/NNPA stands at 4.0%/2.1% and we expect it to Adj. EPS 2.2 3.3 5.2
improve with better collections and rebound in rural economics. However, Growth(%) -33.5 48.2 57.7
provision coverage of 48.5% seems lower which will lead to elevated credit BVPS 33.9 37.2 42.5
cost in the upcoming quarters. Banks total restructured book stands at
Adj BVPS 30.2 33.3 38.2
Rs.1500cr of which standard restructured book stands at Rs.604cr which is
3.1% of total advances. P/E 19.0 13.5 8.6

Valuation and Outlook P/B 1.3 1.2 1.1

We believe that the sector exhibits a strong recovery from Covid-19 impacts Adj. P/B 1.4 1.3 1.2
and the same is evident in improving collections and disbursement. We ROE (%) 7.3 9.3 13.1
expect advances to grow at a CAGR of 20% over FY22-24. The bank is ROA (%) 1.1 1.4 1.9
expected to close the reverse merger with it’s parent company by March 23.
Net Interest Income and PAT is expected to grow at 18% and 53% CAGR
over FY22-FY24E; powered by better loan growth, lower cost of funds. The
Cyril Charly
stock is currently trading at 1yr fwd P/B of 1.1x compared to its 3yr average Research Analyst
P/B of 1.6x. With improving business prospect, we expect decent
improvement in its valuation going forward. We therefore initiate coverage
with a BUY rating by valuing at 1.35x FY24E Adj P/B with a target of Rs 52.

www.geojit.com
 Industry Overview
Despite various measures taken by the Government to increase financial penetration in India, a
significant percentage of India’s population did not have access to basic financial services. To
promote financial inclusion in 2013, the RBI constituted a committee that recommended
differential licensing in the form of payment bank and Small Finance Bank (SFB). RBI awarded
SFB licenses to 10 players on account of the Government’s focus towards financial inclusion
and inclusive banking. Out of the 10 SFBs, there were eight microfinance players, one local area
bank and one NBFC. SFBs were allowed to take deposits, which provide them an edge of having
lower cost of funds in comparison with NBFCs. Micro Finance Institutions (MFIs) turned into
SFBs are now diversifying their advances mix, and focusing on other retail and corporate lend-
ing business. According to ICRA, the AUM of Small Finance Banks are expected to register a
growth of 20% in FY22 compared to 18% growth during FY21. The sector has grown at a CAGR
of 30% during FY16-20.
About company
Equitas Small Finance Bank is the largest SFB in India in terms of the number of banking
Operations in 17
outlets, and the second-largest SFB in terms of assets under management and total deposits as
states and UTs with on Fiscal 2021. Bank was able to successfully diversify its loan portfolio and significantly re-
869 banking outlets duce dependence on microfinance business as compared to other microfinance companies that
and 339 ATMs have converted to SFBs. Equitas offers a range of banking products and services to customers
who are financially unserved and underserved in India. Bank offers asset products like loans
comprising LAPs, housing loans, and agriculture loans to micro-entrepreneurs, microfinance to
JLGs predominantly comprising women, used and new commercial vehicle loans to drivers,
and micro-entrepreneurs typically engaged in logistics, MSE loans to proprietorships, and cor-
porate loans. On the liability side, the bank offers current accounts, savings accounts, and sala-
ry accounts to the public.
Milestone

Source: Company, Geojit Research

Diversified product catalogue to meet rural needs

Average Tick-
Products FY22 Mix FY21 Mix FY20 Mix Average Yield
et Size

Micro Finance 19% 18% 24% 20,000 20.8%

Non Micro Finance 81% 82% 76% - -

Small business loan 46% 44% 41% 3,86,000 17.0%

Vehicle Finance 25% 25% 24% 3,04,000 17.1%

MSE Finance 6% 7% 4% 46,04,000 10.0%

Corporate loan 4% 4% 5% 18,96,000 9.8%

Others 1% 1% 1% - -

Source: Company, Geojit Research

www.geojit.com
 Successful in bringing down the Micro Finance mix from 27% in FY18 to 19% in FY22

Corporate loan
Others
MSE Finance 4%
1%
6%

Micro Finance
19%

Vehicle Finance
25%

Small business
loan
45%

Source: Company, Geojit Research

Improving CASA mix favoring lower cost of funds

20,000 70.00%

18,000 2,002
52% 60.00%
16,000

14,000 4,909 50.00%

7,093
12,000 29% 34%
40.00%
25%
10,000
4,769
5,869 30.00%
8,000 20%

6,000 5,097
20.00%
9,855
4,000 3,323 3,811
1,636 8.13% 7.97%
8.36% 7.34% 6.58% 10.00%
2,000 643
2,274 2,208 5,614
1,638
- 0.00%
FY18 FY19 FY20 FY21 FY22

CASA Retail TD Bulk TD Cost of Funds CASA Mix

Source: Company, Geojit Research

Expanding its demographic presence beyond Tamil Nadu

Others
Rajasthan 15%
4%
Gujarat
4%

Tamilnadu
Karnataka
10% 54%

Maharashtra
13%

Source: Company, Geojit Research

A well diversified mix of loan products to capture rural market

Small Business loan constitutes the largest loan book mix of 46%
Product primarily focuses on self-employed individuals operating small enterprises, typically in
urban and semi-urban locations. Customers that comprise this product segment include mechan-
AUM Mix– 46% ics with garages, push-cart owners, and individuals carrying out agri, dairy business, and others.
Loans offered are with ticket sizes ranging between Rs.50,000 and Rs.20,00,000. The Small Busi-
Yield– 17.0% ness Loans (SBL) segment witnessed the fastest growth, recording a CAGR of 45% over the past
GNPA– 4.2% four years on the back of our innovative cash flow-based credit assessment model, robust distribu-
tion network and strong community presence. As on FY22, the segment advances stands at
PCR– 39.6% Rs.9,522cr which comprises 46% of total advances. The disbursement for FY22 stands at
Rs.3,581cr against FY21 disbursement of Rs.2806cr. The segment yield stands at 17.0% compared
to 17.7% during previous year. For Q1FY23, the GNPA stood at 4.2% with PCR (Provision Cover-
age Ratio) of 39.6%. Average ticket size (ATS) on portfolio level is 3.47 lakh. We expect the seg-
ment to grow at a CAGR of 20.2% over FY22-24E.

www.geojit.com
 Small Business Loan to grow at a CAGR of 20.2%
16,000 40%
Outstanding Loan Book (in Cr) 13,746
14,000 37% 35%

12,000 11,131 30%

27%
10,000
9,522 25%
7,971 23%
8,000 20%
6,279
6,000 19% 15%
17%
4,000 10%

2,000 5%

- 0%
FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Small Business Loans Growth

(including housing finance)

Source: Company, Geojit Research

Micro Finance accounts for 19% of the total loan book

Microfinance customers comprise mainly of farmers, dairy farmers, micro entrepreneurs like
vegetable- vendors, fruit and flower sellers, and others. Bank also provide group loans to
AUM Mix– 19% women customers to encourage them to start small businesses or other income generating
activities. The loans are offered for a tenure of two years, at interest rates between 23% and
Yield– 20.8% 24% per annum. Unsecured without collaterals, these loans are in effect secured through a
GNPA– 4.7% peer guarantee model to promote credit discipline through mutual support within the group,
prudent financial conduct among the group, and prompt repayment of their loans. As on FY22,
PCR– 47.8% segment advances stands at Rs.3,907cr with a segmental mix of 19% compared to Rs.3236cr
with an AUM mix of 18% in FY21. Total disbursement for FY22 is Rs.3,313 compared to
Rs.1773cr in FY21 and enjoys sectorial yield of 20.8%. GNPA as on FY22 stands at 5.9%. As on
Q1FY23, the GNPA improved to 4.7% with PCR of 47.8%. We expect the segment to grow at a
CAGR of 13.7% over FY22-24E.
Micro Finance loan to grow at CAGR of 13.7%
6,000 25%
Outstanding Loan Book (in Cr) 21% 5,055 20%
5,000 18%
4,261 19% 15%
3,907
4,000 3,616
3,236 10%
9%
3,000 5%

0%
2,000
-5%
1,000
-11% -10%

- -15%
FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Micro Finance Growth

Source: Company, Geojit Research

Vehicle Finance constitutes 24.5% of the total loan book

Vehicle finance customers are typically first-time formal financial channel borrowers
purchasing used commercial vehicles, with significant experience in hyper local logistics and
also include small fleet operators. As on FY22, the segment advances stood at Rs.5,047cr which
is 24.5% of total advances compared to FY21 advances of Rs.4,530 cr and segment mix of
AUM Mix– 24.5% 25.3%. As of FY22, the average ticket size for vehicle loans at disbursement is Rs.4,13,000 and
at portfolio level is Rs.3,04,000. As on FY21, New commercial vehicle portfolio constitutes
Yield– 17.1%
33.5% of total vehicle loan portfolio, while used commercial vehicle constitutes 64.5%. Seg-
GNPA– 4.2% ment yield as on FY22 stands at 17.1%. As on Q1FY23, GNPA stands at 4.2% with PCR of
68.0%. We expect the segment to grow at 19.8 CAGR over FY22-24E.
PCR– 68.0%

Vehicle Finance to grow at CAGR of 19.8%

8,000 35%
7,243
Outstanding Loan Book (in Cr)
7,000 30%
29%
5,865
6,000
5,047 25%
5,000 4,530 23%
20%
4,000 3,760 20%
16% 15%
3,000
11% 10%
2,000

1,000 5%

- 0%
FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Vehicle Finance Growth

Source: Company ,Geojit Research

www.geojit.com
 Micro and Small Enterprise Finance constitutes 5.6% of total loans
MSE finance is provided to enterprises engaged in business activities that maintain formal
records for credit evaluation, primarily in urban and semi-urban areas. Customers that
comprise this segment typically undertake manufacturing and trading activities. These
facilities are predominantly secured by primary and collateral security in the form of stock,
book debts, machinery, commercial or industrial premises and residential properties of
promoters/ proprietors. Average ticket size at portfolio level as on FY22 is Rs.31.15 lakh. MSE
advances as on FY22 stood at Rs.1,164cr with an advance mix of 5.6% compared to advances
AUM Mix– 5.6% of Rs.1,180cr and mix of 6.6% as on FY21. Segment yield as on FY22 is 10.0%. As on Q1FY23,
Yield– 10.0% GNPA stands at 5.6% against FY22 GNPA of 4.9%. Segment PCR stands at 30.9%. We expect
the segment to grow at a CAGR of 16.4% over FY22-24E.
GNPA– 5.6%
Micro and Small Enterprise Finance to grow at a CAGR of 16.4
PCR– 30.9% 2,000 1,862 90%
76% Outstanding Loan Book (in Cr)
1,800 80%
1,600 1,436 70%
1,400 60%
1,180 1,164
1,200 50%
1,000 40%
800 669 30%
600 30% 20%
28% 23%
400 10%
200 -1% 0%
- -10%
FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est
Source: Company ,Geojit Research
MSE Finance Growth

Source: Company ,Geojit Research

NBFC Finance constitutes 3.7% of total loan book

Equitas extend term loans to NBFCs that further lend to retail customers in the form of micro-
finance, vehicle finance, housing finance and similar sectors, and to certain other corporate rat-
ed BBB from a recognized credit rating agency. As on FY21, sector advance is at Rs.783cr with a
AUM Mix– 3.7% mix of 4.4% while it has reduced to 3.7% in FY22 with a total advance outstanding of Rs.758cr.
At portfolio level, average size of loan is Rs.18.96cr and generates an yield of 9.77%. GNPA as on
Yield– 9.8%
FY22 stands at 0.6%. As on Q1FY23, GNPA stands at 0.7% with PCR of 100.0%. We expect the
GNPA– 0.7% segment to grow at a CAGR of 18.4% over FY22-24E.
PCR– 100.0% Corporate Loans to grow at a CAGR of 18.4%
1400 1301 80%
Outstanding Loan Book (in Cr) 70%
1200 68%
60%
1000
957
818 50%
783 758
800 40%
36%
600 30%
26%
20%
400
10%
200
-4% 0%
-3%
0 -10%
FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Corporate Growth

Source: Company ,Geojit Research

Others
Loan against Gold: Loans secured by gold jewelry of customers, repayable by monthly
installments or interest modes scheme rather than on one-time repayment basis only. Aver-
age ticket size of loans is in the range of Rs 30,000 to Rs40,00,000. The repayment tenure for
such loans is generally in the range of two years.

Overdraft facilities against Fixed Deposits: Extended to individuals, proprietorships, private

limited companies that have open fixed deposits with the bank for meeting their short-term
liquidity requirements.

Source: Company, Geojit Research

www.geojit.com
 Investment Rationale
One of the largest SFB in India with well diversified loan portfolio
Equitas SFB is one of the largest SFB in India in terms of number of banking outlets. Bank has a
well diversified portfolio including Small Business Loan, Micro Finance, Vehicle Loan, MSE Fi-
nance and corporate loans. Bank has significantly reduced it’s exposure in microfinance and
has been able to diversify their loan portfolio as compared to other microfinance companies
that have converted to SFBs. Bank is aiming to bring down the exposure in micro-finance busi-
We expect loan book to ness to 15% which stands at 19% now. We expect loan book to grow at a CAGR of 20% during
grow at a CAGR of 20% FY22-24 with micro finance growing at 14% and non-micro finance segment growing at 21%.
during FY22-24 with
micro finance growing Non Micro Finance book increased from 71.6% in FY18 to 81.0% in FY22
at 14% and non-micro FY18 FY19 FY20 FY21 FY22 FY23E FY24E
finance segment grow-
Micro Finance 28.4% 26.2% 23.5% 18.1% 19.0% 17.8% 17.1%
ing at 21%.
Non Micro Finance 71.6% 73.8% 76.5% 81.9% 81.0% 82.2% 82.9%

Small Business Loans 33.6% 39.1% 40.9% 44.5% 46.2% 46.5% 46.5%
Vehicle Finance 28.2% 25.2% 24.5% 25.3% 24.5% 24.5% 24.5%

MSE Finance 0.1% 1.6% 4.4% 6.6% 5.7% 6.0% 6.3%

Corporate 3.2% 3.9% 5.3% 4.4% 3.7% 4.0% 4.4%

Others 6.5% 4.0% 1.5% 1.3% 1.0% 1.2% 1.2%

Source: Company, Geojit Research

Improvement in CASA mix to strengthen liability profile and reduce cost.

Equitas has a better liability franchise and ranks among top players in India in terms of total
deposits. Deposit is showing a considerable growth over years post its conversion from NBFC.
During FY21, the bank has registered 51.9% YoY growth in total deposits with savings deposit
growing at 174.1% YoY and demand deposit at 48.8% YoY, while term deposit registered a
growth of 25.6%. Though CASA ratio remained volatile during FY18-20, it showed significant
improvement during FY21. CASA ratio improved from 34.2% in FY21 to 52.0% in FY22. It is
expected to further improved to 55% by FY24. Due to improving CASA mix and availability of
fund at lower cost, cost of deposit contracted from 8.0% in FY20 to 7.7% in FY21 and further to
6.7% in FY22. Strong distribution network across geographies augers well as the bank current-
ly has 869 Banking Outlets, with 41%, 37%, and 22% deposits in the Northern, Southern, and
Western regions of India.

(Rs Cr)
Due to improving CASA
25,000 60%
mix and availability of Deposits Growth
55%
fund at lower cost, cost 53% 12,873 50%
20,000
of deposit contracted 52%
10,948
from 8.0% in FY20 to 40%
15,000
34%
7.7% in FY21 and fur- 29%
9,095
30%
ther to 6.7% in FY22. 25%
10,705
10,000 20%
14,590 20%
8,580 11,530
6,733 9,083
5,000
10%
3,126 5,094
1,249 1,793 1,859
- 389 481 350 520 772 815 1,144 0%
FY18-Act FY19-Act FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Current Account Savings Account Term Deposits CASA Ratio

Source: Company, Geojit Research

Consistent Net Interest Margins despite reduction in high risk Micro Finance Business
Bank has considerably reduced exposure of microfinance portfolio from 76% of the mix as of
FY13 to 19% as of FY22. Despite banks focus in reducing exposure in Micro Finance business,
bank was able to show growth in it’s net interest income due to continuous growth witnessed
in other key segments. Net Interest Income of the bank is expected to show further improve-
ment in the coming quarters. With bank reducing mix of Micro Finance portfolio which carried
an average yield of 21.8%, Net Interest Margin witnessed decline. However, going ahead banks
diversification into non-micro finance portfolio along with strong credit growth, we expect NIM
to improve.

www.geojit.com
 NII growth supported by strong credit growth
3000 9.00%
(Rs Cr)
8.84%
8.80%
2500
8.60%
2000 8.45% 8.33% 8.40%

8.23% 8.27%
1500 8.17% 8.20%
2816
8.01% 2355 8.00%
1000 2039
1798
1495 7.80%
500 1152
861 7.60%

0 7.40%
FY18-Act FY19-Act FY20-Act FY21-Act FY22-Est FY23-Est FY24-Est

Net Interest Income NIM

Source: Company, Geojit Research

Asset quality well in control

Equitas SFB witnessed a spike in asset quality concerns post the demonetization. High share
of micro finance portfolio with large part of the borrowers being from daily laborer category
impacted asset quality for the bank. Impact of covid related economic stress added more
pressure. Though collection efficiency were impacted during covid, it improved to 108.5%
during end of FY21. However, due to the impact of covid second and third wave, collection
efficiency during December 2021 for Small Business Loan, Micro finance, Vehicle Loan, MSE
Finance and NBFC Finance stood at 94.21%, 96.29%, 91.13%, 97.98% and 100.92% respec-
tively. With improving business activity, we expect collection efficiency to improve in the
coming quarters leading to lower slippages and higher recovery. As on Q4FY22, GNPA of the
bank stands at 4.32% and NNPA at 2.37% which is within a decent range considering the
impact caused by covid to the economy. Banks total restructured book stands at Rs.1500cr of
which standard restructured book stands at Rs.604cr which is 3.1% of total advances.

Asset quality to moderate with improved collections

GNPA NNPA

4.32%

With improving busi-

ness activity, we expect 3.50%
2.76% 3.82%
3.03%
collection efficiency to 3.04% 2.37%
improve in the coming 2.55%
1.71% 2.07%
quarters leading to 1.80%
lower slippages and 1.61% 1.80% 1.58%
higher recovery

FY18-Act FY19-Act FY20-Act FY21-Act FY22-Act FY23-Est FY24-Est

Source: Company, Geojit Research

Source: Company, Geojit Research

www.geojit.com
 Key business comparison indicates that ESFBL is trading at a discount valuation

Company Loan Book NII (Rs cr) NIM RoE (%) P/B
FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24
Equitas SFB 19,687 2,039 2,355 2,816 8.2% 8.3% 8.3% 7.3% 9.3% 13.1% 1.3 1.2 1.1

AU SFB 42,023 3,179 4,269 5,400 5.5% 5.6% 5.6% 16.6% 17.6% 18.5% 4.9 4.3 3.6

Ujjivan SFB 16,463 1,774 2,025 2,419 9.1% 9.3% 9.4% -13.8% 6.5% 9.4% 0.0 1.0 0.9

Source: Company, Geojit Research

ROA % ROE (%)

3.0%
25.0% 22.0%
2.5%
2.2% 20.0% 17.9%
1.7% 1.8% 1.90% 16.40%
2.0% 1.4% 15.0%
14.0%
12.5%
1.10% 9.7%
1.0% 10.0% 7.30%
0.0% 5.0%
0.0% 0.3%
0.0%
Ujjivan SFB Equitas SFB AU SFB
-1.0% Ujjivan SFB Equitas SFB AU SFB
-5.0%

Though AU SFB dictates -2.0% -10.0%

-2.04% -15.0%
stronger business num- -3.0% -20.0%
-15.01%

bers compared to Equi- FY20 FY21 FY22 FY20 FY21 FY22

tas, the valuation dif-
ferences between the (Rs Cr)

two indicates that Equi- Loan Book & GNPA

CASA Mix & NIM
tas SFB is undervalued 50000 7.34 46095 8.00 60.00 10.00
7.00 52.00
at current levels. We 40000
6.00 50.00 8.80 8.00

expect strong potential 30000

4.30 5.00 8.10
40.00 37.00 6.00
for valuation expan- 19687 4.00
20000 16303 1.98 3.00 30.00 5.70 4.00
sion. 2.00 27.00
10000 20.00 2.00
1.00
0 0.00 10.00 0.00
Ujjivan SFB Equitas SFB AU SFB Ujjivan SFB Equitas SFB AU SFB

Loan Book -(In Rs Cr) GNPA -% CASA-% NIM-%

Source: Company, Geojit Research

Valuation & Recommendation

In the last 6 years, Equitas Small Finance Bank has been making its presence felt in the industry
as a small finance bank through its product offerings. Unlike other players in the industry,
Equitas quickly diversified its portfolio from microfinance to other product offerings like
vehicle finance, SME finance, and small business finance. Equitas SFB has seen relatively stable
asset quality despite the informal customer segment it serves.

We believe that the sector is strongly recovering from the impact of Covid-19 and the same is
visible in improvement in collections and disbursement. We expect advances to grow at a CAGR
of 20% over FY22-24 with micro finance segment growing at 13% and non micro segment
growing at 21%. Though improved collections will lead to better asset quality, some amount of
stress from restructured book is expected to spill over in coming quarters leading to moderate
improvement in asset quality. GNPA is expected to decline to 3.8% in FY23 and 3.3% in FY24
from current level of 4.3%. Moderation in credit cost along with improved NIM supported by
lower cost of fund will help in improving the return ratios in coming quarters. The bank is ade-
quately capitalized to deal with future uncertainties and an efficient collection mechanism is
expected to support the growth. Bank has raised Rs.550cr through QIP during February 2022
and has reduced the promoter holding to 75% and increased public holding to 25%. The bank is
expected to close the reverse merger with its parent company by March 2023. This will help the
bank to eliminate the promoter holding and comply with the RBI mandate of maximum 40%
promoter holding. The swap ratio for the merger is fixed at 100:231 (231 shares of SFB for 100
shares of holding company). We expect Net Interest Income and PAT to grow at 18% and 53%
CAGR from FY22-FY24E powered by better loan growth, lower cost of funds and normalizing
credit cost. With strong NIM and PAT, we expect return ratios ROA and ROE to improve to
1.9%/13.1% by FY24. However, smooth transition of management post resignation of its Man-
aging Director will be a key factor to be watched upon. We initiate coverage on Equitas SFB
by valuing at 1.35x FY24E Adj P/B with a target of Rs. 52. Recommend BUY rating consid-
ering better profit growth and improvement in ROA

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Standalone Financials

PROFIT & LOSS BALANCE SHEET

Y.E March (Rs cr) FY20A FY21A FY22A FY23E FY24E Y.E March (Rs Cr) FY20A FY21A FY22A FY23E FY24E
Interest Income 2,645 3,194 3,460 4,142 5,062 Cash 2,537 3,379 2,133 2,840 4,104
Interest Expense 1,150 1,396 1,421 1,787 2,246
Loans & Advances 13,747 16,848 19,374 23,937 29,562
Net Int. Income 1,495 1,798 2,039 2,355 2,816
Change 29.8% 20.2% 13.4% 15.5% 19.6% Investments 2,343 3,705 4,450 4,723 4,944
Non Int. Income 282 418 538 621 759
Gross Fixed Assets 489 430 538 673 841
Operating Income 1,778 2,216 2,576 2,976 3,576
Net Fixed Assets 213 185 200 91 85
Change 23.9% 24.7% 16.2% 15.5% 20.2%
Other Assets 475 598 795 850 1,047
Operating Exp. 1,180 1,329 1,704 1,984 2,327
Total Assets 19,315 24,715 26,952 32,442 39,742
Pre Prov. Profit 598 887 872 992 1,249
Prov. & Conting. 247 375 494 430 362 Deposits 10,788 16,392 18,951 23,293 28,607
PBT 351 511 378 562 887 Borrowings 5,135 4,165 2,616 3,306 4,363
Change 8.4% 45.7% -26.1% 48.7% 57.7% Other Liabilities 647 762 1,139 1,181 1,454
Tax 107 127 97 146 231 Equity Capital 1,053 1,139 1,252 1,252 1,252
Tax Rate (%) 31% 25% 26% 26% 26%
Reserves & Surplus 1,691 2,257 2,994 3,410 4,066
Reported PAT 244 384 281 416 656
Shareholder’s Funds 2,744 3,396 4,246 4,662 5,318
Adjustment 0 0 0 0 0
Total Liabilities 19,315 24,715 26,952 32,442 39,742
Adj. PAT 244 384 281 416 656
BVPS (Rs) 26.1 29.8 33.9 37.2 42.5
Change 15.7% 57.7% -26.9% 48.2% 57.7%
105 114 125 125 125 Change 16.2% 14.4% 13.8% 9.8% 14.1%
No. of shares (Cr)
2.3 3.4 2.2 3.3 5.2 Adj. BVPS (Rs) 23.7 27.5 30.2 33.3 38.2
EPS (Rs)
10.5% 45.8% -33.5% 48.2% 57.7% Change 15.3% 15.9% 10.1% 10.0% 14.9%
Change

RATIOS

Y.E March FY20A FY21A FY22A FY23E FY24E

Profit. & Return
Interest yield (%) 15.6 15.0 14.0 14.6 14.9
Cost of funds (%) 8.0 7.7 6.9 7.4 7.5
Spread(%) 7.7 7.4 7.1 7.2 7.3
NIM (%) 8.8 8.4 8.1 8.3 8.3
ROE (%) 9.7 12.5 7.3 9.3 13.1
ROA(%) 1.4 1.7 1.1 1.4 1.9
Business Growth
Loans & Advances (%) 18.6 22.6 15.0 23.6 23.5
Deposits (%) 19.8 51.9 15.6 22.9 22.8
Operating Ratios
Cost to Income (%) 66.4 60.0 66.2 66.7 65.1
CASA (%) 20.5 34.4 52.0 53.0 55.0
Asset Quality
GNPA (%) 3.0 3.8 4.3 3.5 3.0
NNPA (%) 1.8 1.6 2.4 2.1 1.8
Capital Adequacy
CAR (%) 20.0 20.2 21.9 19.5 18.0
Valuation
P/E (x) 18.4 12.6 19.0 13.5 8.6
P/B (x) 1.6 1.4 1.3 1.2 1.1
Adj. P/B (x) 1.8 1.6 1.4 1.3 1.2

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Recommendation Summary (since listing)

80 Dates Rating Target

16 August 2022 Buy 52

70

60

50

40

30
Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22

Source: Bloomberg, Geojit Research.

Investment Criteria
Ratings Large caps Midcaps Small caps
Buy Upside is above 10% Upside is above 15% Upside is above 20%
Accumulate - Upside is between 10% - 15% Upside is between 10% - 20%
Hold Upside is between 0% - 10% Upside is between 0% - 10% Upside is between 0% - 10%
Reduce/sell Downside is more than 0% Downside is more than 0% Downside is more than 0%
Not rated/Neutral -

Definition:
Buy: Acquire at Current Market Price (CMP), with the target mentioned in the research note.
Accumulate: Partial buying or to accumulate as CMP dips in the future.
Hold: Hold the stock with the expected target mentioned in the note.
Reduce: Reduce your exposure to the stock due to limited upside.
Sell: Exit from the stock.
Not rated/Neutral : The analyst has no investment opinion on the stock.

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due
to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit
rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION
I, Cyril Charly, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the
subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.
COMPANY OVERVIEW
Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio
management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such
prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and
Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives,
instructions or guidelines issued by the Regulators from time to time.
DISTRIBUTION OF REPORTS
This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any
other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report.
GENERAL REPRESENTATION
The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee,
warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not
intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or
other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed
the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis
the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.
RISK DISCLOSURE
Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment
under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for
their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives,
financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any
use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of
an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the
investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.
FUNDAMENTAL DISCLAIMER
We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise
specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium
term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The
stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have
no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that
the .recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or
anyof its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those
contained in this report. The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on

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estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may
vary from those projected. These are not scientiave no obligation to tell our clients when our opinions or recommendations 27th December
change. This 2018
report is non-
inclusive and does not consider all the information that the .recipients may consider material to investments. This report is issued by Geojit without any
liability/undertaking/commitment on the part of itself or anyof its entities. We may have issued or may issue on the companies covered herein, reports,
recommendations or information which is contrary to those contained in this report. The projections and forecasts described in this report should be eval-
uated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual perfor-
mance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results
and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or
tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without
notice.
JURISDICTION
The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies men-
tioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distrib-
uting/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession
this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation
of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect
on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign curren-
cies effectively assume currency risk.
REGULATORY DISCLOSURES:
Geojit’s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits
Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Man-
agement Services Private Limited (GFMSL) &Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context
of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our business as a
stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that
no disciplinary action has been taken against us or our Analysts in connection with our business activities.

In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader
before making an investment decision:

1. Disclosures regarding Ownership:

Geojit confirms that:

(i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein.

(ii) It/its associates have no actual beneficial ownership of 1% or more in relation to the subject company (ies) covered herein.

Further, the Analyst confirms that:

(i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in
the subject company.
(ii) he, his associates and his relatives have no actual/beneficial ownership of 1% or more in the subject company covered.
2. Disclosures regarding Compensation:
During the past 12 months, Geojit or its Associates:
(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject com-
pany (c) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not
received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company
(e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject
company is / was not a client during twelve months preceding the date of distribution of the research report.

3. Disclosure by Geojit regarding the compensation paid to its Research Analyst:

Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage ser-
vices or transactions pertaining to trading in securities of companies contained in the Research Reports.

4.Disclosure regarding the Research Analyst’s connection with the subject company:
It is affirmed that, I. Cyril Charly, Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company

5. Disclosure regarding Market Making activity:

Neither Geojit/its Analysts have engaged in market making activities for the subject company.

Please ensure that you have read the “Risk Disclosure Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Ex-
change board of India.
Digitally signed by CYRIL

CYRIL CHARLY CHARLY

Date: 2022.08.16 14:50:54
+05'30'

Geojit Financial Services Ltd. Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website:
www.geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compli-
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H200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN
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