Equitas Holdings Limited

Please find below mentioned short term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
Equitas Holding	58	72	539844	EQUITAS

 

Equitas Holdings Limited (EHL) is a Non-Deposit Taking Systemically Important - Core Investment Company - (CIS-ND-SI) registered with The Reserve Bank of India. EHL’s operations and activities are limited to investing in and providing loans to subsidiary companies. The Company operates two wholly owned subsidiaries: Equitas Small Finance Bank Limited (ESFB), licensed under Section 22 of the Banking Regulations Act, 1949 to carry on the business of small finance bank; and Equitas Technologies Private Limited [ETPL], engaged in the business of freight aggregation.

 

Investment rationale

 

Steady business growth in Q4FY20 despite lockdown: EHL reported steady business growth in Q4FY20 despite lockdown in the last few days of March 2020. The NII grew by 35% yoy led by gross AUM growth of 31% yoy. The pre-provisioning operating profits were up by 54% yoy, however PAT declined 33% yoy on account of higher Covid led provision of Rs99.6 cr. On the asset quality front, GNPA and NNPA ratios improved by 14bps/7bps qoq.
 

Beneficiary of recent measures announced by government: In order to aid MSMEs in the country, the government recently announced a slew of measures including collateral-free loans up to Rs3 lakh crore backed by government guarantee. As per company management, ~Rs5,500 cr of exposure would qualify for an additional 20% loan facility covered under the government guaranteed scheme. Further, government’s announcement of interest subsidy on loans up to Rs50,000 would largely benefit the MFI/street vendors under this scheme which is positive for the company in near term. The share of MFI (Micro Finance), Small business loan and MSE is 24%/41%/4% respectively in the portfolio.
 

Positive banking sector overview: The Indian banking sector has undergone a major reset in the past two to three years with a focus on formalizing the economy further and on driving greater financial inclusion. In addition, the emergence of small finance banks like Equitas Small Finance Bank is not only changing the competitive landscape, but is also opening up innovative channels to provide banking services to the hitherto economically active yet unbanked and under-banked segments of the society. Emergent technologies such as cognitive analytics, and blockchain and distributed ledger technology are redefining banking services globally, with banks forging partnerships with fintech companies and other technology companies not just to improve efficiencies, but also to manage risks better. The creative credit scoring processes are also enabling innovative ways to take banking services at the base of the economic pyramid. All such factors contribute to positive outlook for the banking sector.
 

Valuation: Over the last 5 years, the company has grown at a CAGR of 36.3% & 18.9% on its topline & bottom-line respectively. Currently, the stock is trading at a P/B of 1.17x. EHL’s operating performance has remained strong led by higher NII growth. The higher Covid related provision provides cushion as ~98% of borrowers (93% of portfolio value) have availed moratorium which is significantly higher in comparison to its peers.
 

Duration of recommendation: Short to Medium term.

***Before investment advice your financial advisor