Buy Eqitas Small Finance Bank for target of Rs 125/- Motilal Oswal

EquitasB: A Consistently Performing Bank

EquitasB has established itself as a bank that consistently delivers strong performance, marked by improvements in asset quality and return ratios. With a well-rounded approach to operations, the bank is poised to continue its steady growth trajectory.

Robust Loan Growth and Healthy Margins

One of the key factors driving EquitasB's success is its robust loan growth. The bank has focused on building a diversified loan book, with small business loans (SBL), vehicle finance, and housing finance being the key segments. This strategic approach has paid off, with loan growth reaching an impressive ~25% year-on-year in 9MFY24.

EquitasB's healthy margins further contribute to its strong operating performance. The bank has been able to maintain a controlled credit cost, ensuring that its profitability remains consistent. This stability in margins is a testament to the bank's prudent lending practices and effective risk management.

Building a Granular Liability Franchise

EquitasB has also made significant progress in building a granular liability franchise. The bank has focused on attracting retail deposits, resulting in a rising mix of retail deposits in its overall liability structure. This strategy not only strengthens the bank's funding base but also reduces its dependence on wholesale funding sources.

Furthermore, EquitasB's comfortable CD ratio of 90% indicates a healthy balance between loans and deposits. This ratio reflects the bank's ability to effectively deploy its deposits towards productive lending activities, while maintaining a prudent level of liquidity.

Future Outlook

Looking ahead, EquitasB is well-positioned for sustained growth. The bank's strong loan growth momentum is expected to continue, with an estimated compound annual growth rate (CAGR) of 22% in loans over FY24-26E. This projection reflects the bank's ability to tap into various business segments and cater to the evolving needs of its customers.

EquitasB's focus on asset quality and return ratios ensures that it remains on a solid footing. By consistently delivering strong performance, the bank has built a reputation for reliability and stability in the financial market.

In conclusion, EquitasB's consistent performance, driven by robust loan growth, healthy margins, and a granular liability franchise, positions it as a bank that investors can rely on. With a strong focus on asset quality and a diversified loan book, EquitasB is well-prepared to navigate the evolving landscape of the banking industry.

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