Axis Securities bullish on this small-cap stock; sees over 45% upside

Brokerage house Axis Securities believes that Equitas Small Finance Bank Limited (EQSFB) continues to witness good traction in deposits, especially CASA deposits and expects the momentum to continue.

Backed by the bank’s continued focus on retail TDs and CASA deposits, the brokerage house expects its deposits base to grow at around 22 per cent CAGR over FY21-24E.

The stock has been gaining for the last three trading sessions. It rose 2 per cent to hit an intraday high of Rs 55.10 against the previous close of Rs 53.95.

With a market capitalisation of Rs 6,867 crore, the shares stand higher than 5 day, 20 day and 50 day moving averages but lower than 100 day and 200 day moving averages.

Axis Securities believes EQSFB is eligible for re-rating given its improving profitability, asset quality, and return ratios. The bank is marching in the right direction to implement the reverse merger which is expected to be completed by Dec 22/Mar’23.

It added that upon completion of 5 years as an SFB, EQSFB will be eligible to apply for a universal banking license as well. If issued, it would further support our re-rating rationale.

"We recommend a BUY rating on the stock with a target price of Rs 80 (2.1x Sept’23E ABV), implying an upside potential of over 45 per cent from the current market price," it mentioned in its recent report.

The brokerage firm also highlighted that the bank’s operating efficiency is improving with improving branch productivity and effective leveraging of technology to source deposits.

However, it noted that the near-term Opex is expected to remain elevated as the bank continues to invest in building a franchise and achieving technological sophistication. This is expected to push ROA/ROE expansion to FY23E.

Recently, EQSFB stock was on a roll after the boards of parent Equitas Holdings and its subsidiary ESFBL cleared their merger plan.

The boards of directors of the two companies at their respective meetings approved the scheme of amalgamation between Equitas Holdings Ltd (transferor company) and Equitas Small Finance Bank (transferee company), the companies said in separate stock exchange filings.

The scheme proposes the amalgamation of Equitas Holdings into and with EQSFB and the dissolution without winding-up of the transferor company pursuant thereto, a filing said.

The amalgamation between the two entities is subject to approvals from RBI, stock exchanges, SEBI as well as the National Company Law Tribunal (NCLT).