EQUITAS

SMALL
FINANCE
BANK LTD
Equity
Research Report

SANJEEDEEP MISHRA
 Equitas SFB Ltd
CMP- 90.10
NSE: EQUITASBNK | BSE: 543243
Industry : Banks
EQUITASB reported a robust loan
growth of 33% YoY in FY23. The bank
has been focusing on building a
diversified loan book, with SBL, vehicle
finance, MFI and housing finance being
the key business segments. It has
posted a 25% CAGR in AUM over the
past two years, led by steady trends in
vehicle finance, SBL and MFI segments
(~80% of total AUM). Housing finance
saw a 70%+ CAGR, albeit on a low
base.
The bank has made good progress in
reducing the concentration of MFI
loans, which moderated to 18.8% of
AUM in FY23 from 53.6% in FY16. The
mix of vehicle loans has remained
broadly stable at ~25%, while the mix of
SBLs has increased to 36% from 18%
over the similar period. The mix of
housing loans too has increased and
now constitutes ~10% of AUM.
Disbursements in the MFI and vehicle
loans have started to pick up.
Market Cap in Cr. 10,119.3
Operating Rev. Qtr. Cr. 1,155.7
P/B 2
Net profit QTR Cr. 190
TTM PE ratio 17.6
MFI 61.1
EQUITASB has progressed well
in building a granular liability
franchise and reported a 30%
CAGR in total deposits over the
past four years. Deposit growth
was led by CASA deposits (47%
CAGR). The CASA mix
improved from 25% to 42.3%
over the past four years. The
mix of retail term deposits also
improved to 61% in FY23 from
31% in FY18. However, given
the sharp rise in interest rates
and a widening differential
between SA and term deposit
rates, the bank’s CASA mix has
moderated by 970bp over the past As a result, the bank’s C/I ratio
one year to 42.3%. increased to 63% in FY23 (vs.
60% in FY21). The bank has
EQUITASB reported healthy NIM indicated that it will continue to
at 9.0% in FY23. We note that in all expand the branch network and
four quarters of FY23, margins increase branding and marketing
remained broadly stable at 9-9.1%, expenses going forward.
aided by a controlled cost of funds Accordingly, C/I ratio to remain
at 6.4% in FY23 vs. 6.6% in FY22. high at ~63% in FY24 and
However, with persistent pressure moderate to 61% in FY25.
on CASA deposits, relatively EQUITASB has been reporting a
limited growth in the MFI segment gradual improvement in its
(34% YoY in FY23) and repricing operating performance over the
of the TD portfolio, margins to be past few quarters. Steady AUM
moderate. Further, the bank largely growth has been led by healthy
has a fixed-rate book, which forms traction across segments, while
~85% of total loans, and thus it the moderation in credit costs has
expects yields to recover gradually. boosted earnings. As a result, the
NIM to decline to 8.7%/8.4% over bank reported RoA/RoE of
FY24/25, enabling a 24% CAGR in ~1.9%/~12% in FY23. The bank
NII over the same period has achieved a consistent RoA
and aims to sustain it at >2%.
The bank has been consistently Deposit growth too remains
investing in business by adding healthy, with the CASA mix of
new branches and building digital ~42%. Asset quality is strong with
infrastructure and capabilities, the restructured book declining to
which has kept operating expenses 1% of loans from 7% last year and
elevated. PCR improving 1,400bp in FY23
to 57%.
 Industry Analysis

NBFCs have emerged as the primary source of financing for a vast

section of the population including small and medium-scale enterprises
as well as the economically unserved and underserved individuals.
They have been able to meet the diverse requirements of borrowers in
the most efficient and timely approach considering their wide
geographic reach, comprehension of the numerous financial needs of
people, and extremely swift turnarounds. Therefore, non-bank lenders
have contributed significantly to the cause of financial inclusion in this
process and have also been a key component in fostering the
expansion of millions of MSMEs and self-employed people. In addition
to the growing role played by non-bank lenders in the consumer
financing industry, the expansion of a few key economic sectors,
including housing, consumer goods, and transportation, has been
boosted. (NBFCs) have contributed towards the development of the
country’s infrastructure. The availability of long-term funding by non-
bank lenders has helped in the financial closure and growth of many
large-scale infrastructural projects. NBFCs have played a crucial role in
fostering credit expansion across a range of industries, including
microfinance loans, personal loans, and auto finance loans.
NBFCs have become increasingly important in recent years as they
have played a critical role in providing credit to individuals and
businesses that are underserved by traditional banks. This is especially
true in rural and semi-urban areas, where NBFCs have been able to fill
the gap left by banks. One of the key advantages of NBFCs is their
ability to be flexible in their lending practices. Unlike banks, which have
a rigid set of guidelines for lending, NBFCs can tailor their lending
practices to meet the specific needs of their clients. This has made
them an attractive option for those who are looking
 Industry Analysis

for more personalised financial services. They are financial institutions

that provide a wide range of banking services like loans, credit facilities,
investments, and other financial products. NBFCs have played a
significant role in the Indian economy’s growth story, especially in the
rural and semi-urban areas. They cater to the financial needs of small
and medium-sized businesses, entrepreneurs, farmers, and individuals
who do not have access to traditional banking services. In this article,
we will explore the future of NBFCs in India.
Another advantage of NBFCs is their ability to provide loans quickly.
Unlike banks, which have a lengthy approval process, NBFCs can
approve loans much faster. This is because they have a smaller
bureaucracy and can make decisions quickly. NBFCs have become
increasingly important in India owing to the use of technology to reach
wider audiences. Many NBFCs have developed digital platforms that
allow customers to apply for loans online, making the process faster
and more convenient. This has helped to attract a younger, tech-savvy
customer base. The recent wave of mergers and acquisitions in this
sector has been rising as larger NBFCs seek to expand their reach and
smaller ones look to scale up their operations.
However, NBFCs also have their share of challenges. One of the
biggest challenges facing NBFCs in India is access to funding. Unlike
banks, which have access to low-cost deposits, NBFCs must rely on
borrowing from banks or issuing bonds to raise funds. This can make it
difficult for NBFCs to compete with banks on interest rates. Another
challenge faced by NBFCs is the regulatory environment. While the RBI
regulates NBFCs, there are also several other regulators that oversee
different aspects of the financial services industry.
 Industry Analysis

This can create confusion for NBFCs, especially those that operate
across multiple states or regions.
Despite these challenges, NBFCs have continued to grow in India. The
government is taking several measures to ease the challenging
situations prevailing in the sector by way of providing liquidity support to
NBFCs, Housing Finance Companies (HFCs), as well as Microfinance
Institutions (MFIs) and introducing partial credit guarantee schemes,
etc.
NBFCs have increasingly been playing a significant role in financial
intermediation by complementing and competing with banks, and by
bringing efficiency and diversity into the financial ecosystem. NBFCs
enjoy greater operational flexibility to take up a wider scale of activities,
enter new geographies and sectors and thus grow their operations.
After the pandemic decline, 2023 has brought growth for the NBFCs. It
has demonstrated an innovative and resilient streak over the years
which includes adapting efficiently even during the COVID-19 pandemic
to avoid the revolving credit landscape. The market share of NBFCs
has increased in the last few years with Asset Under Management
(AUM) accounting for as much as 18% of the overall credit on March
2019, up from 12% in March 2008. A few challenges over the past three
years lowered their share to 16% in fiscal 2022, with banks making
bigger growth strides. The increase in NBFCs AUM from US$ 44.02
billion (Rs. 3.6 lakh crore) in March 2008 to almost US$ 330.21 billion
(Rs. 27 lakh crore) in March 2022, and is expected to increase further,
indicates the importance of the sector to overall credit delivery in the
economy.
 About the Company

Equitas Small Finance Bank Limited was incorporated on June

21st, 1993 as V.A.P. Finance Private Limited and later renamed as
Equitas Finance Private Limited in August, 2011. In 2011, Equitas
Holdings Limited acquired the Company. The Company's name
was subsequently changed to Equitas Finance Limited in
September 2015 consequent to it becoming a Public Limited
Company. Equitas Bank is one of the largest small finance banks
in India. As a new-age bank in one of the fastest growing
economies, it offers a bouquet of products and services to meet
the needs of its customers - individuals with limited access to
formal financing channels, Micro, Small & Medium Enterprises
(MSMEs) and corporates. The Bank's firmly entrenched strategy
focuses on providing credit to the unbanked and underbanked
micro and small entrepreneurs, developing products to address
growing aspirations at the `bottom of the pyramid', fueled by
granular deposits and `value for money' banking relationships. The
Bank's asset products are suited to a range of customers with
varying profiles, which include provision of Small Business Loans
(SBLs) comprising loan against property, housing loans, and
agriculture loans to micro entrepreneurs, microfinance to joint
liability groups predominantly comprising women, used and new
commercial vehicle loans to drivers and micro entrepreneurs, MSE
loans to proprietorship, and loans to non-banking financial
companies (NBFCs). On the liability side, the Bank's target
customers comprise mass and mass-affluent individuals to whom it
offers current accounts, salary accounts, savings accounts, and a
variety of deposit accounts.
 About the Company

In addition, the Bank provides noncredit offerings comprising ATM-

cum-debit cards, third party insurance, mutual fund products, and
issuance of FASTag. Pursuant to a Scheme of Amalgamation
approved by the Hon'ble High Court of Judicature at Madras, and
upon fulfillment of all conditions specified under the said Scheme,
Equitas Micro Finance Limited and Equitas Housing Finance
Limited amalgamated with the Company, and the Company was
renamed Equitas Small Finance Bank Limited (ESFBL).
Consequent to the above amalgamation the microfinance and
housing finance businesses of the erstwhile EMFL and EHFL were
transferred to the Company effective September 2, 2016. ESFBL
commenced its banking operations after the receipt of final banking
license from the Reserve Bank of India on September 5, 2016. The
Bank is engaged in retail banking business with focus on micro-
finance, commercial vehicle finance, home finance, loan against-
property finance,corporate finance, and providing financing
solutions for individuals and micro and small enterprises (MSEs)
that are underserved by formal financing channels while providing
a comprehensive banking and digital platform for all. Banking
Outlet comprises branches primarily focusing on garnering and
servicing depositors and outlets that conducts lending operations
for underbanked and unbanked. The Bank deployed 322 ATMs
and cash recyclers at their banking outlets to save valuable time
making the same as a pleasant experience. At present, the Bank
operates from more than 853 locations across 15 States/Union
Territories (including National Capital Territory) of the country.
 Quarterly Results

Indicator Mar-2023 Dec-2022 Sep-2022 Jun-2022 Mar-2022

Total Qtr Revenue cr 1394.4 1216 1147 .4 1073 .6 1044
Operating Expenses Qtr Cr 559.3 521 512 .4 445.6 416.7
Operating Profit Qtr Cr 386.4 279.1 242.3 268.2 283.9
Operating Profit Margin Qtr % 12.78% 11.89% 9.71% 14.35% 15.15%
Depreciation Qtr Cr 0 0 0 0 0
Interest Qtr Cr 448.8 415.9 392.7 359.8 343.4
Profit Before Tax Qtr Cr 260.8 229.2 152.2 126.6 160.7
Tax Qtr Cr 70.7 59.1 35.8 29.6 41.2
Net Profit Qtr Cr 190 170.1 116.4 97 119.5
Basic EPS Qtr Rs 1.7 1.4 0.9 0.8 1
Net profit TTM Cr 573.6 503.1 441 365.8 280.7
Basic EPS TTM Rs 5.2 4 3.5 2.9 2.2

Annual Report
Indicator CAGR 3Yrs CAGR 5Yrs Mar-2023 Mar-2022 Mar-2021

Total Revenue Annual Cr 18.2% 22.1% 4831.5 3997.2 3612.5

Operating Expenses Annual Cr 20% 18.3% 2038.3 1704.1 1329.4
Operating Profit Annual in Cr 25.3% 39.8% 1176 871.9 886.6
Operating Profit Margin Annual % 6% 14.5% 24.34% 21.81% 24.54%
Total Expenses Annual Cr 16.6% 19.4% 4257.9 3716.5 3228.2
EBIDT Annual Cr 19.2% 30.7% 1176 947.2 963
EBIDT Annual margin % 0.9% 7.1% 24.34% 23.70% 26.66%
Interest Annual Cr 12% 18.8% 1617.2 1421.1 1396.5
Depreciation Cr - - 0 75.3 76.4
Profit Before Tax Annual Cr 29.9% 73.8% 768.8 280.7 846.7
Tax Annual Cr 22.1% 63.5% 195.2 0 462.5
PAT Before ExtraOrdinary Items Annual Cr 33% 78.3% 573.6 280.7 384.2
Net Profit Annual Cr 33% 78.3% 573.6 280.7 384.2
Net Profit Margin Annual % 14.4% 46.2% 13.78% 8.11% 12.02%
Basic EPS Annual Rs 25.1% 73.4% 4.7 2.4 3.5
 Cash Flow

Indicator CAGR 3Yrs CAGR 5Yrs Mar-2023 Mar-2022 Mar-2021

Cash frm Operating Act. AnnlCr - 55.4% -34.6% - 159.5 2043.9
Cash frm Investing Act Anl Cr 138.1% -26.1% - - 89.1 - 42.8
Cash frm Financing Annl Act Cr - 8.3% 18.5% - -1316.6 - 1153.9
Net Cash Flow Annual Cr - - - -1246.2 847.2

Balance Sheet

Indicator CAGR 3Yrs CAGR 5Yrs Mar-2023 Mar-2022 Mar-2021

Total ShareHolders Funds Annual Cr 23.4% 20.3% 5157.9 4246.2 3396.3

Minority Interest Liability Annual Cr - - - - -
Total Non Current Liabilities Annual Cr - - - - -
Total Current Liabilities Annual Cr 30.7% 24.4% 1445.9 1138.5 761.6
Total Capital Plus Liabilities Annual Cr 21.9% 21.3% 34,958.1 26,951.9 24,715.2
Fixed Assets Annual Cr 21.2% 6.2% 379.1 200.4 185.1
Total Non Current Assets Annual Cr - - - - -
Total Current Assets Annual Cr 18.5% 24.9% 27,914.4 22,301.6 20,825
Total Assets Annual Cr 21.9% 21.3% 34,958.1 26,951.9 24,715.2
Contingent Liabilities+Commitments Cr - 17.6% - 18% - 18.3 12.5
Bonus Equity Share Capital Annual Cr - - - 0 0
Non Current Investments Unquoted Cr - - - - -
Current Investments Unquoted Cr - - - - -
 0
2
4
6
8
M
ar
-2
0 17

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
NIM Actual %

20 ar-
21

M
20 ar-
22

M
20 ar-
23
 0
20
40
60
M
ar
-2
0 17

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
20 ar-
21
CASA Ratio Annual %

M
20 ar-
22

M
20 ar-
23
 Capital Adequacy Ratios Annual % Analysis
Annual (in cr ₹)

40

30

20

10

0
0 17

20 ar-

20 ar-
20 ar-

20 ar-
20 ar-

20 ar-
-2

18

19

20

21

22

23
M

M
M

M
M

M
ar
M
 -200
0
200
400
600
M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
20 ar-
21

M
20 ar-
22
ROE Annual % Analysis

M
20 ar-
23

M
a
20 rc
23 h
 0
0.5
1
1.5
2
M
ar
-2
0 17

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
ROA Annual %

20 ar-
21

M
20 ar-
22

M
20 ar-
23
 0
2.5
5
7.5
10
M
ar
-2
01
7

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
20 ar-
21
ROCE Annual %

M
20 ar-
22

M
20 ar-
23
 0
10
20
30
40
50
M
ar
-2
01
7

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20
Cr

M
20 ar-
21
Annual Rs Analysis in
Book Value Per Share

M
20 ar-
22

M
20 ar-
23
 0
1
2
3
M
ar
-2
01
7

M
20 ar-
18

M
20 ar-
19

M
20 ar-
20

M
Analysis

20 ar-
21
Annual (in cr ₹)

M
20 ar-
22

M
Long Term Debt To Equity Annual

20 ar-
23
 Peer Comparision

Rev Grwth Net Profit YoY Operating

Indicator M. Cap PE P/B
Qtr YoY % Grwth % Rev Qtr Cr
HDFC Bank Ltd. 961677 .56 20.91 3.32 33.66 20.88% 47,548.34
ICICI Bank Ltd. 659441.04 19.37 3.07 37.76% 35.55% 34,438.91
State Bank of India 522491.4 9.39 1.58 31.47% 57.31% 98,083.91
Kotak Mahindra Bank 3,66,321.89 24.54 3.28 35.57% 23.46% 11,981.63
Axis Bank Ltd. 3,02,461.16 27.9 2.33 35.26% - 23.38% 24,629.66
IndusInd Bank Ltd. 107118 .32 14.39 1.95 27.49% 54.91% 10,020.71
Equitas SFB 10,130.41 17.63 1.96 29.01% 104.32% 1155.73

Indicator CAGR 3Yrs CAGR 5Yrs Mar-2023 Mar-2022 Mar-2021

Total Revenue Annual Cr Indicator Indicator Indicator Indicator Indicator

Operating Expenses Annual Cr Indicator Indicator Indicator Indicator Indicator
Operating Profit Annual in Cr Indicator Indicator Indicator Indicator Indicator
Operating Profit Margin Annual % Indicator Indicator Indicator Indicator Indicator
Total Expenses Annual Cr Indicator Indicator Indicator Indicator Indicator
EBIDT Annual Cr Indicator Indicator Indicator Indicator Indicator
EBIDT Annual margin % Indicator Indicator Indicator Indicator Indicator
Interest Annual Cr Indicator Indicator Indicator Indicator Indicator
Depreciation Cr Indicator Indicator Indicator Indicator Indicator
Profit Before Tax Annual Cr Indicator Indicator Indicator Indicator Indicator
Tax Annual Cr Indicator Indicator Indicator Indicator Indicator
PAT Before ExtraOrdinary Items Annual CrIndicator Indicator Indicator Indicator Indicator
Net Profit Annual Cr Indicator Indicator Indicator Indicator Indicator
Net Profit Margin Annual % Indicator Indicator Indicator Indicator Indicator
Basic EPS Annual Rs Indicator Indicator Indicator Indicator Indicator
 Shareholding Summary
Others
5%
Rev Grwth Net Profit YoY Operating
Indicator M. Cap PE P/B
Qtr YoY % FII Grwth % Rev Qtr Cr
Avenue Supermarts Ltd. 2,43,673.73 102.26 15.15 20.57%22.7%59.36% 10,594.1
Trent Ltd. 61,319.8 137.89 23.03 64.26% 320.19% 2182.75
Aditya Birla Fashion 19,351.42 -537.53 5.78 26.15% 66.89% 2879.73
Shoppers Stop Ltd. 8771.26 75.59 42.57 29.52% 346.83% 923.9
V-Mart Retail Ltd. 4149.56 - 528.67 4.89 29.46% -167.43% 593.91
Spencers Retail Ltd. 571.44 -2.72 - 3.8 0.28% - 73.22% 543.39
V2 Retail Ltd. Public 433.92 - 33.86 1.76 22.23% - 9.76% 193.43
34.3%

Indicator CAGR 3Yrs CAGR 5Yrs Mar-2023 Mar-2022 Mar-2021

Total Revenue Annual Cr Indicator Indicator Indicator Indicator Indicator

MF
Operating Expenses Annual Cr Indicator Indicator 37.9%
Indicator Indicator Indicator
Operating Profit Annual in Cr Indicator Indicator Indicator Indicator Indicator
Operating Profit Margin Annual % Indicator Indicator Indicator Indicator Indicator
Total Expenses Annual Cr Indicator Indicator Indicator Indicator Indicator
EBIDT Annual Cr Indicator Indicator Indicator Indicator Indicator
EBIDT Annual margin % Indicator
FII/FPI have increased holdings
Interest Annual Cr
fromIndicator
Indicator
4.08% Indicator
Indicator
to 22.69% Indicator Indicator
in Mar 2023
Indicator Indicator Indicator
qtr. Cr
Depreciation Indicator Indicator Indicator Indicator Indicator
Profit Before Tax Annual Cr Indicator Indicator Indicator Indicator Indicator
Tax Annual Cr Indicator Indicator Indicator Indicator Indicator
Mutual Funds have increased holdings from 13.37% to 37.93% Indicator
PAT Before ExtraOrdinary Items Annual Cr
Indicator Indicator Indicator Indicator in Mar
Net Profit Annual Cr Indicator Indicator Indicator Indicator Indicator
2023
Net Profit qtr. Annual %
Margin Indicator Indicator Indicator Indicator Indicator
Basic EPS Annual Rs Indicator Indicator Indicator Indicator Indicator
 Analysis
Annual revenue Rose 20.9 percent
in the last year ₹2 4831.5 crores its
sectors average revenue growth for
the last fiscal year was 12.9%
Annual net profit Rose 104.3% in
the last year to ₹573.6 crores. Its
sector average net profit growth for
the last fiscal year was 60.9% .
Stock price rose 129.4% and
outperformed its sector by 91.6% in
the past year.
Debt to equity ratio of 0.6 is less
than 1 and healthy. This implies that
its assets are financed mainly
through equity.
MF holding increased by 24.6% in
the last quarter to 37.9.
Interest coverage ratio is 1.7,
higher than 1.5. This means that it is
able to meet its interest payments
comfortably with its earnings (EBIT).
Quarterly revenue rose 29% YoY
to Rs 1394.4 Crores. Its sector's
average revenue growth YoY for
the quarter was 15.6%.
Quarterly net profit rose 59% YoY
to Rs 190 Crores. Its sector's
average net profit growth YoY for
the quarter was 69.8%.
Price to earning ratio is 17.5,
higher than its sector PE ratio of
25.4
Return on Equity(ROE) for the last
financial year was 11.1%, in the
normal range of 10% to 20%.
 SWOT Analysis
Strength
Company with high TTM EPS
Growth
413.9% returns for Nifty 500 over
5.4 years
Strong Annual EPS Growth
New 52 Week High
Growth in Net Profit with
increasing Profit Margin (QoQ)
Growth in Quarterly Net Profit with
increasing Profit Margin (YoY)
Increasing Revenue every
Quarter for the past 4 Quarters
Increasing profits every quarter for
the past 3 quarters
Book Value per share Improving
for last 2 years
FII / FPI or Institutions increasing
their shareholding
Strong Momentum: Price above
short, medium and long term
moving averages
Threat
Weakness
Inefficient use of capital to
generate profits - RoCE declining
in the last 2 years
-9.0% returns for Nifty 500 over 1.9
years
Declining Net Cash Flow :
Companies not able to generate
net cash
Opportunity
Brokers upgraded recommendation
or target price in the past three
months
8.4% returns for Nifty 500 over 0.3
years
Undervalued Growth Stocks
468.8% returns for Nifty 500 over
5.9 years
High Momentum Scores (Technical
Scores greater than 50)
319.5% returns for Nifty 500 over
5.1 years
Highest Recovery from 52 Week
Low
Decrease in NPA in recent results
RSI indicating price strength
Stocks near 52 Week High with
Significant Volumes