Initiating coverage | Financial
June 20, 2016
Equitas Holdings
BUY
CMP
`174
Initiating Coverage
Target Price
`235
Equitas Holdings is one of the fastest growing microfinance institutions in India
Investment Period
12 Months
having a wide portfolio of product. Backed by strong Management and recently
procured license for setting up a small finance bank (SFB), it is all set for its next
leg of growth. Post its conversion into a SFB, Equitas intends to continue to focus
Stock Info
on high yielding assets like microfinance and used vehicle financing. We believe
Sector
Financial
the company is ahead of other MFIs and upcoming SFBs in its learning curve as it
Market Cap (` cr)
5,825
has already been financing used vehicle, MSE and home loans. Hence it is in a
position to scale up faster than its peers.
Beta
0.9
52 Week High / Low
187 / 134
Transition to SFB likely to be smooth: Once Equitas migrates to a SFB model it will
have to adhere to all the regulations applicable to commercial banks including
Avg. Daily Volume
2,085,080
maintenance of CRR and SLR, which could possibly levy pressure on its yields.
Face Value (`)
10
However, once an SFB, it will have access to low cost funds, ie below the current
BSE Sensex
26,625
~11.5% rate via deposits, which in our view can insulate against any major fall in
Nifty
8,170
profitability. Although initial transitional expenses with regards to technology and
manpower would be high, but we see operating leverage playing out in the next
Reuters Code
NA
few years which should result in strong growth for the company post the
Bloomberg Code
EQUITAS.IN
absorption of initial one-time costs. Further, meeting the 75% Priority Sector
Lending (PSL) target will not be a challenge for Equitas as its entire portfolio
qualifies for PSL and hence the migration from NBFC to SFB should be smooth.
Shareholding Pattern (%)
Underleveraged balance sheet leaves enough scope for growth: Equitas’ AUM
Promoters
0.0
has grown at a CAGR of 65% over FY2012-16 to `6,131cr. AUM of used vehicle
MF / Banks / Indian Fls
25.6
financing and MSE has scaled up to `1,510cr and `1,087cr in its 5th & 3rd years
of operations, respectively. There is a huge untapped potential as microfinance is
FII / NRIs / OCBs
44.2
targeted to the lower income segment which often lacks access to formal
Indian Public / Others
30.2
financing sources. With a portfolio of only ~`53,200cr, and streamlining of
regulatory aspects, the microfinance industry is positioned for healthy growth
going ahead. We believe there would be enough scalability for Equitas without
Abs.(%)
3m 1yr 3yr
further dilutions given its relatively low leverage of ~4.4x.
Sensex
7.9
(0.8)
37.8
Reducing dependence on microfinance: Equitas has successfully diversified its
Equitas
32.4
NA NA
business over the past few years as the share of microfinance in terms of its total
AUM has declined to 54% in FY2016 from 100% in FY2011, while that of vehicle
finance and MSE has risen to 42% from nil over the same period. Despite
Price History
aggressive growth, it has been able to maintain strong asset quality with GNPA at
220
0.2% for microfinance and 1.3% at the consolidated level. Conversion to SFB will
200
put pressure on the yield however access to low cost funds will help to some
extent. However, we expect ~100 bps decline in NIM over the next two years.
180
160
Outlook Valuation: Equitas is rightly placed and adequately capitalized to encash
on the opportunity arising out of growing credit need from the underserved
140
segment and has the potential to deliver a high double-digit earnings growth for
120
multiple years. At the current market price the stock is trading at 2.3x its FY2018E
100
BV of `75.6. Despite regulatory compliance we expect it to deliver a ROE of
11.5% and ROA of 2.5% in FY2018. We recommend BUY on the stock with a
target price of `235.
Key Financials (Consolidated)
Source: Company, Angel Research
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017E
FY2018E
NII
293
460
675
934
1,274
% chg
67.8
57.2
46.6
38.4
36.4
Net profit
74.3
107.0
167.1
195.0
275.9
% chg
133.0
44.0
56.2
17.1
41.1
NIM (%)
12.9
12.9
12.4
11.7
11.5
Book Value (`)
102.1
43.6
49.7
67.4
75.6
P/ABV (x)
3.7
2.7
2.4
Siddharth Purohit
RoA (%)
3.3
3.0
3.1
2.5
2.5
022 400 3600 - 6872
RoE (%)
12.2
11.2
13.3
10.9
11.5
[email protected]
Source: Company, Angel Research; Note: CMP as of June 17, 2016
Please refer to important disclosures at the end of this report
1
Initiating coverage | Equitas Holdings
Transition to Small Finance Bank is likely to be smooth: Once Equitas migrates to a
SFB it will have to adhere to all the regulations applicable to commercial banks
including maintenance of CRR and SLR, which can put pressure on its yield. The
company will have to maintain the CRR and SLR on its existing borrowings as well.
However, it will have access to low cost funds, ie below the current ~11.5% rate
via deposits, which will insulate against any major fall in profitability. Initial
expenses with regards to technology and manpower will remain high, but we see
operating leverage playing out in the next few years which will help strong growth
post absorption of the initial one-time costs. Further, meeting the 75% Priority
Sector Lending target will not be a challenge for Equitas as its entire portfolio
qualifies for PSL and hence the migration from being a NBFC to a SFB should be
smooth.
The company doesn’t intend to get into new products in the near future and would
like to grow its existing set of lending portfolios before getting into other retail
products. We believe this is a move in the right direction. However, post the
conversion to a SFB we expect the company to start launching new products in
other segments post some consolidation in its existing areas of operations. The
company intends to roll out ~400 new branches under the SFB in areas where it
currently doesn’t have a presence.
Exhibit 1: Regulatory aspect of Small Finance Bank (SFB)
Key Regulations
Company’s Plan of Action
With MFI’s average ticket size of `9,364 and that of vehicle finance and MSE at
50% of a SFB’s loan portfolio should constitute of loans not
`3.8lakhs and `2.1 lakhs respectively, the SFB will comfortably meet the
exceeding `25 lakhs.
guidelines.
As per FDI rule, the holding of foreign stake holders in a SFB
Post the IPO, foreign investor holding in the company has declined to below 49%
cannot exceed 49%.
from 93% earlier.
SFBs need to operate 25% of their branches in unbanked rural
Work in progress to set up ~400 branches including the unbanked rural areas.
areas.
CRR & SLR to be maintained as per RBI norms.
Will be complied as per the guidelines by the RBI.
The company’s existing loan book qualifies for PSL, so there shouldn’t be any
SFB needs to have 75% of its loans under the priority sector.
constraints in meeting the PSL target, going ahead.
Maximum exposure to single entity and group to be capped at
Will be complied as per the guidelines by the RBI.
10% & 15% of net worth respectively.
SFBs are not permitted to set up any subsidiary.
Will be complied as per the guidelines by the RBI.
Post the IPO, the company is now well capitalized to comply with stipulations and
Minimum CAR of 15% of its RWA, with Tier of 7.5%.
capital should not be a constraint factor.
Source: Company, Angel Research
June 20, 2016
2
Initiating coverage | Equitas Holdings
Underleveraged balance sheet leaves enough scope for growth: Equitas’ AUM has
grown at a CAGR of 65% over FY2012-16 to `6,131cr with strong growth
witnessed across its lending business. The AUM of used vehicle finance segment
and MSE has scaled up to `1,510cr and `1,087cr in its 5th & 3rd years of
operations. There is a huge untapped opportunity as microfinance is targeted at
the lower income segment which often lacks access to formal financing sources.
With a portfolio of only ~`53,200cr, and given the government’s focus on
financial inclusion coupled with streamlining of regulatory aspects, the
microfinance industry is positioned for healthy growth going ahead. We believe
there would be enough scalability for Equitas without further dilutions, given its
relatively low leverage of ~4.4x.
Exhibit 2: AUM and Leverage
14,000
4.6
5.0
4.4
4.4
4.5
12,000
11,576
3.8
3.8
3.6
4.0
10,000
3.5
8,575
3.0
8,000
6,125
2.5
6,000
2.0
4,010
4,000
1.5
2,486
1.0
1,484
2,000
0.5
0
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
AUM (` Cr)
Leverage (x)
Source: Company, Angel Research
Microfinance business has huge scalability: Equita’s microfinance business has
grown at a CAGR of 46% over FY2012-16 to `3,288cr. There is a huge untapped
opportunity in this segment as microfinance is targeted to the lower income
segment which often lacks access to formal financing sources. Ideally the ticket size
of the loans range from `2,000-`35,000 (average ticket size of `9,634) and more
than 90% of the borrowers are female, who access loans via group borrowings
(Self Help Group) for very small businesses. Sharing the group liability has resulted
in maintaining credit discipline and hence the delinquency in this type of business
has been very low despite it being an unsecured form of loan. EMIs are collected
on 14 days or 28 days basis, which reduces the risk of any bad loans. Though the
RBI has relaxed the norm by increasing the ticket size of loans up to one year from
`15,000 to `30,000, the company doesn’t intend to aggressively increase the
average incremental ticket size as it could result in deterioration in the asset
quality.
June 20, 2016
3
Initiating coverage | Equitas Holdings
With a loan portfolio of only ~`53,300cr for the microfinance industry and the
government’s focus on financial inclusion together with streamlining of regulatory
aspects, the industry can look forward for healthy growth ahead. Refinancing from
MUDRA brought adequate and timely availability of funds and has resulted in
strong growth for the industry. Further, easing of interest rates by banks has also
been beneficial for MFIs as the NCD market reflects the overall interest rates in the
economy. Despite being a late entrant, Equitas has been able to scale up its
operations very fast and now ranks fourth in terms of gross loan portfolio within
the microfinance industry.
Exhibit 3: Microfinance AUM (` In Cr)
7,000
6,444
6,000
5,000
4,603
4,000
3,288
3,000
2,144
2,000
1,503
1,135
724
1,000
-
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Reducing dependence on microfinance: Equitas has successfully diversified its
business over the past few years with the share of microfinance in terms of its total
AUM having declined to 54% in FY2016 from 100% in FY2011, while that of
vehicle finance and MSE has risen to 42% from nil over the same period. Despite
aggressive growth, it has been able to maintain strong asset quality with the GNPA
at 0.2% for microfinance and 1.3% at the consolidated level. Its NIM of 11.1% and
12.5% respectively for the two aforementioned segments should help mitigate
against any serious deterioration in asset quality, going forward. It is worth noting
that while the company has expanded its product portfolio it has not neglected the
microfinance business and we believe that this would likely be one of the key areas
of growth in the years to come.
June 20, 2016
4
Initiating coverage | Equitas Holdings
Exhibit 4: Portfolio Distribution
120.0
100.0
1.0
3.0
3.8
4.5
4.0
11.1
20.5
80.0
35.8
42.1
42.4
60.0
100.0
87.9
40.0
76.5
60.5
53.5
53.6
20.0
0.0
FY11
FY12
FY13
FY14
FY15
FY16
Micro Finance Business Vehicle Finance & MSE Business (` Cr) Home Loans
Source: Company, Angel Research
Diversifying into used vehicle finance and MSE financing a positive move: The
company earlier diversified into used vehicle & MSE financing and within 5 years it
has been able to scale up its AUM to `2,597cr, growing at a CAGR of 131% over
FY2012-16. The segment combined now forms 43% of the company’s overall
AUM, of which 25% is accounted by the used vehicle segment while the MSE
segment accounts for 18%. With an average ticket size of `3.8 lakhs, the primary
target customers are first time buyers of used vehicles and the Management
believes its experience in handling the unsecured loan portfolio will help in further
scaling up the vehicle & MSE portfolio.
There are large players in the used vehicle financing business. However, the
company believes it has enough scope to penetrate the hinterland of the country
where a formal system of financing in this segment is still missing and borrowers
have to depend on high cost funds from local players. Private financers still
account for ~65-70% of the market share in the used vehicle financing business
and this leaves enough scope for NBFCs to scale up their operations.
The MSE segment has see rapid growth and the company has been able to scale
up to an AUM of `1,087cr by the end of the 3rd year of operations which is a
commendable job. We expect the company to report 40% growth over the next few
years and there is enough potential to meet the growth target.
Exhibit 5: Vehicle finance and MSE
FY13
FY14
FY15
FY16
AUM Combined
305
889
1,686
2,597
% Growth
232.1
191.9
89.7
54.0
Vehicle
305
801
1,175
1,510
% Growth
232.1
163.2
46.7
28.5
MSE
87
511
1,087
% Growth
484.5
112.7
Opex
14.1
12.1
7.7
6.8
Credit Cost
1.4
2.1
3.2
1.9
Source: Company, Angel Research
June 20, 2016
5
Initiating coverage | Equitas Holdings
Funding mix to change in company’s favor over the next 2-3 years: The company
has over the years tilted its borrowings mix more in favor of banks and reduced its
exposure to Non Convertible Debentures. Upon conversion of SFB, the bank will
have more leeway of low cost funds in the form of deposits and higher credibility
will allow it to price its NCDs at a competitive rate. This will result in lower cost of
funds for the company going ahead, although deposit mobilizations could be tepid
in the initial years, particularly in the low cost CASA. The bank is likely to raise
wholesale deposits and gradually tap its existing customers for the low cost saving
deposits.
Exhibit 6: Funding Mix
120.0
100.0
9.7
17.8
15.3
19.5
10.4
26.1
80.0
6.3
41.2
15.6
25.2
16.7
60.0
40.0
79.9
78.4
64.9
58.8
57.0
57.2
20.0
0.0
FY11
FY12
FY13
FY14
FY15
FY16
Banks
Financial Institutions
NCDs
Source: Company, Angel Research
Asset quality has been decent; we don’t expect material change going ahead:
The company has managed to maintain a low NPA level despite aggressive growth
in the last 4-5 years and also considering that microfinance is an unsecured form
of loan. The company has maintained its Gross NPA at 0.23% which is a
commendable job. However, in the vehicle finance business, the Gross NPA is
2.46% which can be a cause of concern if it escalates further. In the home loan
business, Gross NPA has gone up to 2.84% and hence the Management intends to
go slow on expanding the business. The vehicle finance business by virtue of its
nature will have higher NPAs compared to other products. But CV sales numbers
in the last one year indicate there is some improvement in freight in the domestic
market and hence we believe we may not see any substantial deterioration in the
asset quality, going forward.
June 20, 2016
6
Initiating coverage | Equitas Holdings
Exhibit 7: Asset Quality Trend
(%)
1.8
1.6
1.6
1.6
1.3
1.4
1.2
1.1
1.0
1.0
0.9
1.0
0.8
0.8
0.7
0.6
0.6
0.4
0.3
0.2
0.2
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
Gross NPA / On-Book AUM
Net NPA / On-Book AUM
Source: Company, Angel Research
Slippages in the microfinance segment was 0.33% and in the vehicle finance and
MSE segment it was at 2.95% while in the housing finance segment the slippages
ratios remained elevated at 4.44% in 4QFY2016. Credit cost for microfinance
stood at 65bp, while that of vehicle finance and MSE was at 188bp; for the home
loans segment it was
0.53%. Overall credit cost remained at
1.17% for
4QFY2016. We expect credit cost to remain at 125bp for FY2017 and FY2018.
Exhibit 8: Credit Cost
(%)
1.60
1.46
1.40
1.20
1.20
1.17
1.20
1.00
0.87
0.73
0.80
0.60
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Operating cost to go up in the near term due to SFB conversion: Microfinance
business by virtue of its nature attracts high costs as the sourcing of clients and
managing them needs high number of employees. Though we have seen Cost/
Income ratio of Equitas coming down from 71.8% in FY2013 to 53% in FY2016,
there is still scope for it to come down, when it converts itself to a SFB. However,
during the process of conversion we see the cost going up for the company and
hence expect the Cost/Income ratio to go up from current 53% to 57% by FY2017.
However, FY2018 onwards, there is high possibility of it trending down.
June 20, 2016
7
Initiating coverage | Equitas Holdings
Exhibit 9: Cost/Income to go up
(%)
80.0
71.8
70.0
57.0
57.0
60.0
55.0
53.6
53.0
50.0
40.0
30.0
20.0
10.0
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Exhibit 10: Cost/Asset
(%)
12.0
10.9
10.0
8.2
7.6
8.0
7.1
7.3
7.2
6.0
4.0
2.0
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
Operating expense/ Average AUM
Source: Company, Angel Research
NIM, ROA and ROE to drop in near term; to bounce back over few years: NII
growth for the company has been strong over FY2012-16, having grown at a
CAGR of ~50%. We expect the same to grow by 37.4% over FY2016-18.
However, looking at the compliance with regards to CRR and SLR, we expect NIM
to contract over the next two years. We have already seen our calculated NIM for
the company coming down by 50bp over the last one year and believe it could
drop by another 100bp to 11.5% by FY2018. Equitas will have to spend
substantially higher going ahead on technology and manpower as it migrates to a
SFB and this will result in ROA and ROE compression going ahead, before it
bounces back to normal level.
June 20, 2016
8
Initiating coverage | Equitas Holdings
Exhibit 11: NIM Trend
1,400
13.5
1,274
1,200
12.9
12.9
13.0
12.6
1,000
12.4
934
12.5
800
675
12.0
600
460
11.7
11.5
11.5
400
293
175
11.0
200
-
10.5
FY13
FY14
FY15
FY16
FY17E
FY18E
Net interest income (` Cr)
Net interest margin (%)
Source: Company, Angel Research
Exhibit 12: ROA & ROE
14.0
13.3
12.2
11.5
12.0
11.2
10.9
10.0
8.2
8.0
6.0
4.0
3.3
3.0
3.1
2.3
2.5
2.5
2.0
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
Return on average assets
Return on average net worth
Source: Company, Angel Research
High Concentration to Tamil Nadu is not a risk: A close comparison of Portfolio At
Risk (PAR) among various states suggests that Tamil Nadu has a moderate PAR
with 30 day PAR at 0.21% and 90 days and 180 days PAR at 0.11 and 0.05%
respectively. The same is lower for the large northern states of India. From this
point of view we believe that the high concentration of business for Equitas from
Tamil Nadu is not a big risk as it is perceived to be.
Exhibit 13: States with High PAR
States with high PAR
PAR 30 days
PAR 90 days
PAR 180 days
Delhi
1.80
0.71
0.31
Rajasthan
0.64
0.47
0.18
Gujarat
0.53
0.33
0.14
Karnataka
0.49
0.33
0.19
Madhya Pradesh
0.46
0.30
0.17
Source: Company, Angel Research
June 20, 2016
9
Initiating coverage | Equitas Holdings
Exhibit 14: States with Low PAR
States
PAR 30 days
PAR 90 days
PAR 180 days
Assam
0.07
0.04
0.03
Odisha
0.09
0.06
0.03
Kerala
0.10
0.06
0.04
West Bengal
0.18
0.13
0.08
Tamil Nadu
0.21
0.11
0.05
Bihar
0.22
0.14
0.08
Source: Company, Angel Research
Exhibit 15: Consolidated Performance
FY12
FY13
FY14
FY15
FY16
AUM (` crs)
824
1,484
2,486
4,010
6,131
% growth
3.8
80.1
67.5
61.3
52.9
On Book %
74.8
81.8
85.4
86.4
82.7
Off Book %
25.2
18.2
14.6
13.6
17.2
NIM %
14.5
12.6
12.9
12.9
12.4
ROA
(0.8)
2.3
3.3
3.0
3.1
ROE %
(2.3)
8.2
12.3
11.2
13.3
Cost/ Income %
88.3
71.8
55.0
53.6
58.0
Cost/ AUM %
14.7
10.9
8.2
7.6
7.1
Gross NPA/ On Book AUM (%)
1.2
0.3
0.7
1.1
1.3
Net NPA/ On Book AUM (%)
0.1
0.2
0.6
0.8
0.9
Leverage
3.2
3.6
3.8
3.8
4.4
Source: Company, Angel Research
Overview of Microfinance Industry:
The microfinance industry (MFI) witnessed rapid growth post 2001, after the RBI
granted priority sector status to bank loans advanced to MFIs. MFI had a problem
of high cost of funds and in order to tackle the problem the Union Budget 2016
announced setting up MUDRA Bank to refinance the microfinance sector. As a
result microfinance companies have better access to funds at lower costs and can
now scale up. Though there are ~60 microfinance companies in India, nearly 72%
of the gross loan portfolio is accounted by the top 10 players.
June 20, 2016
10
Initiating coverage | Equitas Holdings
Exhibit 16: Top10 MFI’s in India
Top MFIs, gross loan portfolio (Rs. cr)
FY16
Market Share (%)
Janalakshmi
10,983
21
SKS
7,677
14
Ujjivan
4,088
8
Equitas
3,283
6
Grameen Koota
2,539
5
Satin
2,538
5
L & T Finance
2,210
4
ESAF
1,925
4
Grama Vidiyal
1,502
3
Utkarsh
1,432
3
Total of Top 10
38,177
72
Source: MFIN
Exhibit 17: State-wise distribution of gross loan portfolio of the industry
State-wise distribution of gross loan portfolio
FY16
Tamil Nadu
16.0%
Karnataka
13.0%
Maharashtra
12.0%
Uttar Pradesh
11.0%
Madhya Pradesh
8.0%
Odisha
6.0%
West Bengal
6.0%
Bihar
5.0%
Kerela
5.0%
Gujarat
4.0%
Others
14.0%
Total
100.0%
Source: MFIN
June 20, 2016
11
Initiating coverage | Equitas Holdings
Valuation
Equitas is rightly placed and adequately capitalized to encash on the opportunity of
growing credit need from the underserved segment and has the potential to deliver
high double digit earnings growth for multiple years. At the current market price
the stock is trading at
2.3x its FY2018E BV of
`75.6. Despite regulatory
compliance we expect it to deliver ROE of 11.5% and ROA of 2.5% respectively in
FY2018. We recommend BUY with a target price of `235.
Comparative table
Within the listed space, we believe SKS Microfinance is the best comparable
company, while we have tried to make a comparison with other listed NBFCs as
well.
Exhibit 18: Comparative - Micro Finance
Micro-Finance
Equitas
SKS Micro Fin
Janlakshmi Ujjivan
Satin
Gross Loan Portfolio (crs)
3,283
7,677
10,983
4,088
2,538
Avg loan o/s per client
11,961
16,557
23,773
15,739
15,873
Branches
397
1,191
341
469
364
Employees
3,055
6,323
7,803
4,105
2,368
Clients (lakhs)
27.4
46.4
46.2
26.0
16.0
Source: MFIN
Exhibit 19: Comparative - Micro Finance
Equitas
Ujiivan
SKS Micro Fin
NIM (%)
11.4
12.3
5.6
ROA (%)
3.1
3.7
4.5
ROE (%)
13.3
18.3
25.1
CAR (%)
21.0
24.1
23.1
GNPAs (%)
1.3
0.2
0.1
NNPAs (%)
0.9
0.1
0.1
P/BV
3.5x
3.1x
6.7x
Leverage
4.8x
4.7x
4.9x
Source: Company, Angel Research
Exhibit 20: Comparison with - Vehicle Finance NBFCs
Consolidated
Equitas
STFC
Chola
Sundaram Fin Magma
AUM ` Crs
6,125
72,760
29,815
17,895
18,183
AUM CAGR (FY12-16) (%)
65.5
16.0
22.0
7.3
8.1
Yield (%)
21.9
NA
17.1
NA
NA
Spread (%)
10.6
NA
NA
NA
8.6
NIM (%)
12.4
7.3
8.7
NA
7.0
GNPAs (%)
1.3
6.2
3.5
2.1
7.4
NNPAs (%)
1.0
1.9
2.1
0.9
5.7
ROA (%)
3.0
1.9
2.3
2.5
1.4
ROE (%)
13.0
12.0
15.5
15.2
10.8
Source: Company, Angel Research
June 20, 2016
12
Initiating coverage | Equitas Holdings
Risks
High concentration to a single state: Equitas derives ~63% of its AUM from Tamil
Nadu alone. Any change in socio political situation / occurrence of a natural
calamity can impact the economic condition of the borrowers and in turn impact
the credit quality of the company.
Ability to scale up its operations fast: The company has raised `720cr through
fresh issuance of shares, amounting to 56% of its pre-IPO net worth. Inability to
scale up its operations will result in ROE dilution in the near term.
Ability to meet deposits targets post SFB conversion: Post conversion to a SFB,
Equitas will be allowed to raise deposits from customers. Ability to raise deposits
from its existing client base will be limited looking at the average income profile of
the said borrowers. It might have to offer higher rates vis-a-vis other banks which
might have a negative impact on the NIM.
Company background
Equitas is a diversified financial services player with strong presence across
microfinance, vehicle finance, MSE finance, and housing finance segments.
Incorporated in 2007 and headquartered in Chennai, Equitas operates across 11
states through 549 branches. Equitas, through its subsidiary Equitas Micro Finance
Ltd (EMFL) is the fifth largest microfinance company in India (on gross loan
portfolio basis). Equitas has also received in-principle approval from the RBI to set
up a SFB in October 2015.
Key Management Personnel:
P. N. Vasudevan, Managing Director.
S. Bhaskar, CFO, joined the Equitas Group in 2007.
H.K.N. Raghavan, CEO of EMFL, joined the Equitas Group in 2008.
V. S. Murthy, CEO of Equitas Finance Ltd (EFL), joined the Equitas Group in 2010.
Exhibit 21: Key Businesses - Segment-wise data (As on 31st March 16)
Micro
Vehicle
MSE
Affordable
Particulars
Finance
Finance
Finance
Housing
AUM (` Cr )
3,283
1,510
1087
246
% of Total AUM
53.6%
24.7%
17.8%
4.0%
Micro Housing-
`2.4 Lakhs
` 2,000-
Ticket Size
`3.8 Lakhs
` 2.1 Lakhs
`35,000
Affordable
Housing `10.6
Lakhs
Source: Company, Angel Research
June 20, 2016
13
Initiating coverage | Equitas Holdings
Profit & Loss Statement
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017E
FY2018E
NII
293
460
675
934
1,274
- YoY Growth (%)
67.8
57.2
46.6
38.4
36.4
Other Income
1.1
0.9
3.9
5.1
6.9
- YoY Growth (%)
-
-
-
30.5
35.0
Operating Income
294.0
461.2
678.9
939.2
1280.8
- YoY Growth (%)
67.5
56.9
47.2
38.3
36.4
Operating Expenses
161.8
247.2
359.7
535.4
730.1
- YoY Growth (%)
28.4
52.8
45.5
48.8
36.4
Pre - Provision Profit
132.2
214.0
319.2
403.9
550.7
- YoY Growth (%)
166.9
61.9
49.2
26.5
36.4
Prov. & Cont.
18.4
50.4
59.1
102.9
138.9
- YoY Growth (%)
106.5
174.1
17.2
74.1
35.0
Profit Before Tax
113.8
163.6
260.1
301.0
411.8
- YoY Growth (%)
186.3
43.7
59.0
15.7
36.8
Prov. for Taxation
39.5
56.6
93.0
105.3
135.9
- as a % of PBT
35
35
36
35
33
PAT
74.3
107.0
167.1
195.6
275.9
- YoY Growth (%)
133.0
44.0
56.2
17.1
41.0
Balance Sheet
Y/E March (` cr)
FY2014 FY2015 FY2016
FY2017E
FY2018E
Share Capital
73
269
270
335
335
Reserve & Surplus
669
902
1,071
1,921
2,197
Net Worth
742
1,172
1,341
2,256
2,532
Borrowings
1,849
3,032
4,683
6,557
7,868
- Growth (%)
45
64
54
40
20
Deposits
-
-
-
350
1,850
- Growth (%)
-
-
-
-
429
Other Liab. & Prov.
160
262
482
426
575
Total Liabilities
2,751
4,466
6,507
9,588
12,825
Cash and Cash Equivalents
415
557
947
852
958
Investments
72
176
12
1,468
1,731
Advances
2,123
3,465
5,070
7,098
9,583
- Growth (%)
75.0
63.2
46.3
40.0
35.0
Fixed Assets
27.2
46.7
65.8
85.5
111.2
Other Assets
114
222
412
85
442
Total Assets
2,751
4,466
6,507
9,588
12,825
June 20, 2016
14
Initiating coverage | Equitas Holdings
Key Ratio
Y/E March
FY2014
FY2015
FY2016
FY2017E
FY2018E
Profitability ratios (%)
NIMs
12.9
12.9
12.4
11.7
11.5
RoA
3.3
3.0
3.1
2.5
2.5
RoE
12.2
11.2
13.3
10.9
11.5
Asset Quality (%)
Gross NPAs
15.5
37.4
68.1
140.3
188.4
Gross NPAs %
0.7
1.1
1.3
1.6
1.6
Net NPAs
13.0
27.8
47.8
87.0
116.8
Net NPAs %
0.6
0.8
0.9
1.0
1.0
Credit Cost
0.9
1.5
1.2
1.2
1.2
Per Share Data (`)
EPS
10.2
4.0
6.2
5.8
8.2
BVPS
102.1
43.6
49.7
67.4
75.6
Adj BV
100.3
42.5
47.9
64.8
72.1
Valuation Ratios
PER (x)
17.4
44.7
28.7
29.8
21.1
P/ABVPS (x)
NA
NA
3.7
2.7
2.4
Dividend Yield (%)
-
-
-
-
-
DuPont Analysis
Interest Income
21.0
20.9
20.2
19.3
18.4
Interest Expenses
8.2
8.2
7.9
7.7
7.1
NII
12.7
12.8
12.3
11.6
11.4
(-) Prov. Exp.
0.0
0.0
0.1
0.1
0.1
Adj. NII
12.8
12.8
12.4
11.7
11.4
Other Inc.
7.0
6.9
6.6
6.7
6.5
Op. Inc.
5.7
5.9
5.8
5.0
4.9
Opex
0.8
1.4
1.1
1.3
1.2
PBT
4.9
4.5
4.7
3.7
3.7
Taxes
1.7
1.6
1.7
1.3
1.2
RoA
3.2
3.0
3.0
2.4
2.5
Leverage
3.8
3.8
4.4
4.5
4.7
RoE
12.2
11.2
13.3
10.9
11.5
June 20, 2016
15
Initiating coverage | Equitas Holdings
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Equitas Holdings
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
June 20, 2016
16