Equitas Small Finance Bank: Brokerages see over 50% upside in stock amid multiple triggers

Equitas Small Finance Bank (ESFB) shares have the potential to generate over 50% return in one year as near-term pain has been already priced in, says brokerage house Nirmal Bang.

The bank has done very well on the liability front while diversifying its asset base away from MFIs, however, since its asset quality has weakened due to the Covid-induced shock, ESFB needs to focus on improving the portfolio quality/mix as well as building better provisioning buffers, says Emkay Global Financials. 

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Nirmal Bang believes that stock may touch a target price of Rs 81 apiece, while Emkay Global sees a target of Rs 80 per share for this scrip from current levels.

As per Nirmal Bang, the stock is undervalued and is available at attractive valuations 

"We continue to value Equitas Small Finance Bank at 2x FY24E ABV to arrive at our target price of Rs81. The bank is trading attractively at 1.3x FY24E P/ABV, pricing in the increase in credit costs for the next two quarters and geographical concentration. However, the stock, in our view remains under-valued despite its long runway for growth, improving liability franchise and improved returns profile," said the brokerage. 

Recently, the board of ESFB has approved a new scheme of amalgamation between Equitas SFB and the promoter/holding company, Equitas Holdings Ltd, primarily to meet the promoter holding norms in ESFB.

The bank raised Rs 5.5 billion through QIP (qualified institutional placement) to meet Minimum Public Shareholding requirement, resulting in 9% equity dilution. Post QIP, the promoter shareholding (Equitas Holdings - EHL) has dropped to 74.7%. 

In this regard, Emkay believes that once the merger is completed, ESFB will apply for a universal banking licence, which should be long-term positive for ESFB. "Currently, we have a Buy rating on ESFB with a target price of Rs 80 per share," it said. 

On Friday, the counter closed at price of Rs 53 on the BSE, the upside for target prices set by the two brokerages come out around 52%. 

Shares of ESFB has traded largely in negative in the past one year. The scrip declined by about 12% in the past one year as on March 25, 2022. 

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision