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Informist, Monday, Oct. 14, 2024

By Sachi Pandey

MUMBAI – Equitas Small Finance Bank Ltd.'s net profit for the September quarter is expected to fall 12.5% on year to INR 1.73 billion from INR 1.98 billion in the same period last year due to a rise in provisions on the back of elevated stress in the microfinance segment, according to an average of estimates from eight brokerages. However, the bottom line is seen rising nearly six-fold sequentially from INR 258 million in the previous quarter. 

Brokerages pegged the company's net profit for Jul-Sept in the range of INR 1.43 billion-INR 1.97 billion. In Apr-Jun, the bank made provisions to the tune of INR 1.80 billion, which weighed on the bottom line. The company is yet to release the date for announcing its Jul-Sept results. On Monday, its shares closed 1.7% higher at INR 74.11 on the National Stock Exchange.

Centrum Broking Ltd. said that underperformance in the microfinance sector, which faced a broader industry-wide slowdown, could be a drag on the small finance bank's earnings. This, coupled with high credit costs and margin compression would make for a year-on-year decline in profit. Kotak Institutional Equities also highlighted that the bank's provisions remain a concern, with slippages in the microfinance segment driving up credit costs.

Motilal Oswal Financial Services predicted a modest quarter for the bank, anticipating a 9% on-year fall in the net profit due to ongoing pressures from rising operating expenses and provisions. YES Securities Ltd. highlighted better disbursements to microfinance segments in Jul-Sept as one of the positives for the bank, which may lead to quarter-on-quarter improvement in profit. However, the brokerage also highlighted that a rise in slippages and core credit cost due to deterioration in the microfinance portfolio will continue to weigh on the bank's profitability.

As of Sept. 30, the bank's gross advances were up 15.4% on year at INR 360.50 billion, as per provisional figures released by the lender earlier this month. Sequentially, advances were up 3.4%. The bank's total deposits were up 29.3% on year at INR 398.59 billion as of Sept. 30. The cost of funds of the bank rose slightly to 7.50% as of Sept. 30, against 7.46% a quarter ago and 7.21% a year ago, the filing said. 

Low-cost current account savings account deposits grew at a slower pace, up 17.4% on year at INR 121.84 billion. The bank's CASA ratio was 31% as of Sept. 30, unchanged from the previous quarter but lower than 34% a year ago.

Brokerage firms expect the net interest income of the bank to grow marginally on year. While the cost of funds has stabilised, a shift in the loan mix has kept margins under pressure, limiting any significant growth in net interest income, which is expected to grow only 5% on year, Kotak Institutional Equities said. In the quarter ended June, the net interest income of the bank rose to INR 8.02 billion, up 8% on year. 

According to the average of eight estimates, the bank's net interest income is expected to rise 7.39% on year to INR 7.66 billion in Jul-Sept. Sequentially, the net interest income is seen rising only 2.58%. The brokerages have pegged the bank's net interest income in the range of INR 7.94 billion-INR 8.54 billion for the quarter. 

While Equitas Small Finance Bank's quarterly profits have been showing signs of recovery, the year-on-year decline reflects underlying challenges in the microfinance segment which, along with elevated provisioning, make asset quality and credit cost management crucial factors for future performance. The gross non-performing assets ratio of the bank was at 2.73% as of Jun 30, against 2.61% a quarter ago, and 2.75% a year ago. The net non-performing assets ratio was at 0.83%, as against 1.17% a quarter ago, and 1.18% a year ago. 

Following are the Jul-Sept earnings estimates, in million rupees, for Equitas Small Finance Bank based on reports compiled by Informist from eight brokerages: 

End

Edited by Tanima Banerjee

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