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Spark Capital
Equitas Holdings (Buy)
CMP: ₹194.10
Target: ₹226
Remains a ‘buy’ idea in the Small Finance Bank (SFB) space owing to a well-diversified product profile, prudence in approaching the micro-finance institutions (MFI) marked by the lowest ticket size amongst peers, visibility on growth, margins and a well laid out bank transition plan in terms of branch expansion/ resultant opex in the medium term. Key takeaways:
Expect the SFB to post about 43 per cent growth in advances in FY17 led by growth in MFI and micro, small and medium enterprise (MSE) segments. Used CV and housing to grow at about 30 per cent each.
Estimate the company to open 412 liability branches by March 2017 with about 8-10 employees per branch resulting in the cost to income rising to about 54 per cent from 53 per cent in FY16; expect the full impact of transition costs to come through in FY18 with a peak CIR of 60 per cent.
Expect other income profile to be driven largely by processing fees, resulting in other income to assets ratio of 1.8 per cent for FY17, largely led by the high churn MFI book.
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