Why Equitas Small Finance is down 30% | Opportunity to add or more pain ahead in equitas? #Finance

hey everyone some time ago we discussed the small Finance sector of India where we compared the top small #1a73e8; text-decoration: none;">Finance Bank including Au equitas ujian utar suod and discussed key opportunities and challenges in this sector personally I’ve been bullish on the long-term potential of small text-decoration: none;">Finance industry however every sector goes through the ups and downs that impact the share price of the companies within that sector that’s why today I want to discuss this reason behind 30% correction in equitas small

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance bank with this correction equitas is is now trading at Price to Book off 1.75 and price to earning off 15 then the followup question is has aoda share price bottomed out or there can be more pain ahead but before we

discuss further please note that this CashNews.co is only to share my knowledge on the latest development in the small Finance sector and specific detail about equitas it’s not a buy or

sell call please do your research before investing your money so if you look at equitas share price Journey it’s IPO was at levels around 32 R in November 20 and it quickly doubled in the next one year however over the next one year it share price fell down more than 40% and then share price

jumped almost three times to touch peak of around 115 rupee during January 24th but since then there is around 30% correction in equ share price actually I was waiting for the latest con call to get a clear idea behind the correction so equitas has declared its q1 f25 results and its deposit stood

at 37524 CR that has grown 35% year on year so deposit growth has been very good then Advan has stood at 3487 1 CR that has grown 18% year on year now this has been a relatively weaker performance against their guidance of 25% growth in advances but the good news is that management in the latest

communication has mentioned that they should end the year at the guided levels of 25% however company’s net Profit for the quarter stood at just 26 CR and got tanked 86% year on year and management has clearly mentioned the reason for the sharp fall in the net

Profit it’s due to onetime correction in their PCR ratio PCR stands for provision coverage ratio this PCR ratio was 55% and now it has increased to 70% it was done by taking a floating provision of 180 CR as per management this was done basically because of the new guidelines

that RBI has come out within the month of April for small Finance Bank to convert into Universal bank and the requirement is that the net NPA should be less than 1% and our net NP of March

was slightly over 1% so we have done a onetime correction in our PCR to bring it down to less than 1 % and also take PCR to a more reasonable level of about 70% so this was a one-time action taken by management and one of the key reason for fall in net Profit along with all the

return ratios for equitas from next quarter onwards net Profit should be back on track however apart from this onetime floating provision there’s another key challenge for the bank rather this challenge is for the entire industry there are high slippages in the micr

Finance Loan segment of the bank in q1 of f24 micro none;">Finance slippages were 35 CR that is increased to 85 CR please note that microf Finance has around 70% exposure in company’s Loan book and this micr

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance slipage is a key concern because this is not a one-off event due to some political issue or natural disaster as per management it is more fundamental to the industry it’s mainly

due to overleveraging due to an increased number of lenders that is the reason other microf Finance companies are also struggling Credit access gramine the

largest microf Finance Company in India share price is corrected 27% from the peak on top of this equitas management has refrain from giving any guidance on this micr

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance slippages for the near term as it still need more clarity management mentioned that we hope that by the end of second quarter we should be able to come and give a better guidance for the

Credit cost for the full year and this lack of near-term clarity for Credit cost for the entire year is the key reason why quitar share prices corrected so much because because people in the near term do not want to take the risk also says there are issues with the

microf Finance segment equitas want to reduce exposure in this segment micro text-decoration: none;">Finance Loan growth has already fallen to 6% year- on year in q1 and since microf Finance is a high margin business fall in this segment

would also impact the net interest margin for the bank and its overall Profitability that’s another reason why qu’s share price has fallen I hope you got a fair idea behind the correction in eidar share price having said this please note that m mro

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance is just 177% of equita total Portfolio so yes there is a pain but it’s microf text-decoration: none;">Finance is only a small portion of equitas overall business and management is quite confident to achieve 25% Advanced growth in f25 despite challenges in Mac segment so overall I believe that majority of bad news is already priced in and equitise is already down 30%

trading at a price to book of 1.75 so Valuation Comfort is very much there having said this since there are still challenges with microf Finance segment ‘s Q2 number

can also remain under stress and share price May remain under selling pressure but hopefully it should recover in H2 of f25 I still believe that fundamentally gutas is a strong franchise and run by top leadership team so overall everything boils down to your investment Horizon for shortterm it

might not be a good idea but such difficult situation create good opportunity for long-term investors having said this it requires a lot of patience and courage to stick with your conviction now you can decide what is right approach for you I explained everything that I am aware of the latest

development in equitas and the reason for correction in it share price thanks for watching this CashNews.co by the way I also track more than 200 quar results in the Excel tracker and discuss the results and Valuation in my exclusive weekly CashNews.co series that also include my

own investment ideas and reason for investment you can get the details from the pin comment and let me know if you want me to discuss any other company I’ll see you in the next CashNews.co till then take care