Shares of Equitas Small Finance Bank Ltd (SFB) have corrected 43 per cent in the past one year and now trades at 1 time September 2026 estimated adjust book value. MOFSL believes that healthy growth momentum with an estimated loan CAGR of over 20 per cent and a gradual recovery in profitability with RoA recovering to 1.5 per cent by FY27E will support stock performance in the medium term. For now, the brokerage has retained its 'Buy' call with a revised target price of Rs 77 on the stock.
MOFSL said the growth outlook for Equitas SFB is steady and that the MFI mix may decline further. It sees asset quality stress (MFI) lingering in the near term and credit cost staying elevated during the same period. This may lead to pressure on NIM. But the turn in rate cycle may offer some relief, MOFSL said.
Equitas SFB has reported a 100 bps decline in margins over the past one year, due to rising funding costs and a shift from high-yield MFI loans to secured products.
With stabilising funding costs, a comfortable CD ratio of 86-87 per cent, and its ability to moderate SA rates as the interest rate cycle turns, the bank is expected to maintain steady margins, especially as fixed-rate loans (80 per cent of the book) support margins in a favorable rate environment.
"The moderation in MFI mix may put pressure on portfolio yields; however, the bank is aiming to offset some impact by focusing on other high-yielding segments, viz. used CV, micro-LAP, etc. With continued investments, C/I ratio may remain elevated in the near term and gradually improve to 64 per cent by FY27E," MOFSL said.
The domestic brokerage said the MFI stress is particularly pronounced in regions like Karnataka, where collection efficiency (CE) has dropped to 90 per cent and the government intervention has created significant uncertainty in collection outlook.
"Despite these challenges, the bank’s continuous efforts to reduce MFI exposure (currently at 14 per cent and expected to go down to single digits) and recovery in vehicle finance are expected to ease the slippage run rate in the medium term. We estimate a credit cost of 1.6 per cent in FY27, which will reduce cyclicality in overall business," it said.