Banking Stock Gets Add Call Amid Attractive Sector View, Target Price Rs 65: Kotak Securities

Kotak Securities has assigned add call to leading banking stock, Equitas Small Finance Bank Ltd with a target price of Rs 65 apiece. The current market price of the stock is Rs 59 apiece. According to the analyst, "Management reiterated that the asset quality is improving and that is driving confidence to grow faster, while liabilities continue to be an area of work. We take comfort from the stabilization in leadership at the bank and the progress on the reverse-merger. Check key details below:

1. Equitas Small Finance Bank Stock Performance & Return

The current market price of the stock is Rs 59 apiece with an intraday decline of 0.33%. The stock has a market capitalisation of Rs 7481 crore. The stock's 52-week high is Rs 63 apiece and 52-week low is Rs 37 apiece, respectively.

The stock has soared 22% in last 3-months, 52% in last 6-months, and 82% in last 5-years.

2. Management Continuity And Reverse-Merger

Two Key Focal Points Now Largely Addressed: The bank has seen two positive developments recently - (1) the leadership issue has been addressed with the current MD & CEO, Mr Vasudevan, deciding to stay back (link) till the board and regulator see fit, and (2) the reverse-merger process is now in its final stage and expected to be completed in January 2023.

As highlighted in our last note (link), the reverse-merger offers a potential upside to investors driven by - (1) net reduction in outstanding shares from ~1.25 bn to ~1.11 bn, and (2) liquid assets held by Equitas Holdings accreting to the net worth of the merged entity.

3. Asset Quality Improvement

The Covid pandemic posed asset quality challenges for the bank, especially in the microfinance and vehicle finance books. ~30% of the bank's restructured book (led by the vehicle finance segment) slipped into NPA.

4. Valuation

According to Kotak Securities, "We retain ADD rating and increase Fair Value to Rs65 (Rs60 earlier). At our FV, we value the bank at 1.3X BVPS (adjusted) and 9X December 2024E EPS for mid-teen RoEs in the medium term. We continue to build a steady recovery in return ratios driven primarily by lower credit cost in the medium term. With asset quality pain largely behind, the discussion is now moving towards operating profit performance."

5. About Equitas Small Finance Bank

Equitas Small Finance Bank Limited operates as a bank. It offers savings accounts, fixed deposits, loans, debit and credit cards, investment, insurance, online services, and other related activities. It came into existence in 1993.

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.