ValuePickr Forum

Equitas Holding Ltd

So will the shareholding structure be similar to what IDFC and IDFC Bank had before merger with capital first?


Detailed report on Equitas

Disc - Invested


Had attended concall of Equitas Holdings Ltd. Key points I noted on the concall:

• We had a good quarter. Growth in advances by 44% on a yoy basis. Return ratios also started to show improvement.
• Awaiting regulatory approvals from RBI and SEBI for the new scheme for listing of SFB. Post their approval, will approach NCLT.
• Portfolio is diversified. Vehicle finance and MFI contribute 25% each to our loan book. In small business loan, we are seeing strong growth – 10 to 25 lakh. Average ticket size is 4 lakh for the segment. First time borrower consisting of 98%. However, they have been borrower with us for MFI loans and have graduated from that to higher ticket size loan.
• MSME – unsecured portfolio degrowing and don’t want to focus on it.
• Corporate loan – focusing on MFIs and reducing HFC exposure
• Technical write offs of 23 crore this quarter.
• CASA came at 28%. CASA ratio growth to remain muted as we will focus on TD for our growth.
• FY20 – add 20 liability and 20 asset branches each but want to add more marketing employees. Will help in advances growth.
• Guidance – 35 – 40% growth in advances and expect 15% growth in opex for FY20.
• Disbursement around 2200 crore for last 3 quarters. What should we read in it? Why aren’t we growing? Largely in Q4, we couldn’t increase lending in MFI and small business loan on account of lower growth in January due to holidays and in March due to code of conduct which impacted MFI growth. Hopefully, it should improve going forward
• Opex increase in costs this quarter? 12 crore increase overall, other expenses increased by 14 crore – make provision with related for special allowance regarding basic – 5.5 crore provision for it and normal year end expenses. Opex growth will be 15% for next year.
• Branch addition – 40 including asset and liability.
• Return ratio guidance – we haven’t given guidance on anything else. Have trends for last few quarter for guiding you on that.
• Geographic perspective – Have diversified set of products. Existing products are scaling up well. Very cautious on asset quality. Keep investing on collection and legal team. Asset quality will remain a principal focus for us.
• RoA improvement – You can see the trend and figure out
• Progress post becoming SFB 2.5 years ago? 2.5 years ago we had a plan in hand but demonetisation impacted us. However, it is now behind us. Back to steady state business. Comfortably mobilise liabilities to fund assets. Comfortable on liquidity front. CASA will be a challenge for a bank like us especially since are SFB. CASA growth will take little time – However, we have done better than our plans. Asset side – doing well. Lending to other MFI doing well too. By and large our plans post conversion to SFB have been on track. Lost a year due to demonetisation.
• Investment book has reduced in the quarter. Investments – first half we had done well in investment side. But now given the current markets, we continue to hold more money in hand/bank. Cash front, 784 crore call money received leading to higher cash.
• Deposits – More than 10 crore is 64%. Retail deposits to inch up from the current level? Currently focus on growing more retail term deposit. Post November, started getting good growth on liability side. Differential between 2 crore FD and 10 crore FD? Rate depends on market condition. Earlier it was more than around 9%. Now its around 8.4%.
• MSE book run down further going forward? Running down the unsecured business loan. Secure area is our major focus
• GNPL – small business loans- GNPA of 6.5% growth of 90% in it. High GNPA despite growth. Before 2003 – 2018, started two verticals, LAP and housing. That vertical got closed down. 450 crore of advances. These have higher NPAs. Particular portfolio comes down, NPA will also come down. 415 crore book on small business loans Legacy book which is there is under stress. Legacy book is stable now and there are no delays in it. LTV in these loans is around 50 – 70%.
• MFI – good growth in the segment. Given current environment? We should look at good growth in the segment around 25 – 30%.
• Within housing finance portfolio, what is happening? Some changes made with Housing finance and LAP being different now.
• Home loans – 18 crore. Current year focus on improvement in growth rates.
• MSE finance has done well. Changing mix here. Degrowing unsecured book which was lower ticket size. Working capital is growing with unsecured loans are coming down. What gives us confidence? Working capital is secured by working capital of the company. Covering more than entire loans.
• Working capital book is just 1 year old only. Last year, there was nothing much a year ago in secured working capital.
• Moving towards more secured lending with focus on working capital.
• NIM pressure due to moving towards secured loans. Overall it will keep coming down . Portfolio mix has to mature to diversified base. MSE might become 15 – 20% our total loan book. NIM will come down a bit as new products have lower yields. Off set of that should be helpful in manage
• Expansion into East markets? More preferred in North side. No reason we should plan to invest in branches in East. Large potential in markets where we are invested and garnering liability franchisee in the area where we are present.
• Average Disbursement figure is 29,000 in MFI business. Increase it by 3 – 4K in some time. Will be a pan India policy.
• 20 – 25% growth in advances for MFi loan book.
• Opex front – 15% growth in FY20. 240 crore opex cost in FY20 on quarterly basis. Average quarterly expenses of 240 – 250 crore per year.
• Unsecured loan nos – MFI + unsecured business loan
• Cost of funds should increase? Deposits rate will not go up. May be it will remain here or it might come down a bit. No indication it should go up
• 392 branches earlier – add 20 branches this year to take liability branches to 412. Asset branches are around 500.
• Current account and saving account holders increased
• NIMs declined – cost of funds remained same. NIM contraction of 15 bps on qoq basis – contributed from change in loan books towards secured loans. MFI also disbursement reduced due to election.
• Envisaged business – CASA as % of borrowing we are good but rates seem to on higher side? In terms of rates on CASA or TD, it depends on state of markets. % of CASA contribution to 28%. It will come down a bit next year as we are planning to grow by 40% next year. Deposit growth should be 40 – 50% next year. Will try to fill it with CASA but retail and institutional TD will grow faster. CASA growth will be difficult to keep pace with advance growth.
• Vehicle finance – market condition adverse but we still grew by 30% during the quarter? Growth driven by new commercial vehicles. Portfolio is strong. Market situations are not that stressed.
• Small business loans – ticket sizes and yields? Consists of 3 categories: 50,000 to 5 lakh, 5 lakh to 10 lakh and 10 lakh to 25 lakh – Average ticket size for first category is 3 lakh, second category is 6 to 6.5 lakh and third category is 12 lakh. 80% of the book is below 5 lakh.
• Credit costs in small business loans – cross sell to MFI customers – credit costs to MFI and small business loans. How GNPA can look like in Small Business Loans? Had decent portfolio of small business loans during demonetisation also. It wasn’t impacted much.
• Reason for discontinuing unsecured MSE loan book? We are a new bank and starting the business through MSE in unsecured book is a bit risky. Will progress from secured to unsecured after gaining experience in the segment. There are obvious asset quality issues in the industry. Any specific concerns in our portfolio? What went wrong with it? We were not comfortable with business model of unsecured loans. When we grow our customers on asset and liability franchisee, we will use analytics to mine them. That’s how we will create a base portfolio for unsecured loan.
• 40 branches to be added during FY20, new employees on sales and marketing team will be added. Opex will be higher by 15% for next year.
• Most of the customer segment is quite new, does it result in higher credit cost? Risks in unsecured loans has gone up since 4 – 5 quarters back. No of credit lines for such unsecured customers has gone up sharply in past 4 – 5 quarters.
• Growing at 40% plus for advances, RoE is 11% currently. Status on capital raise given current listing for SFB? Tier II capital hardly much. Don’t see much requirement for raising funds for next 3 – 4 years. Enough capital right now. Tier II capital lot of scope for raising it. End up raising some Tier II capital in next 3 – 4 years. May be in 4 year time frame, our Tier I capital will come down to 14% range from 21.5% currently.
(Disclosure: Invested)


Compared notes between Ujjavan, Equitas and AU…Like Equitas…


Small Fin Banks
S.No. Name CMPRs. P/E Mar CapRs.Cr. GNPA COF Loan book Depoists Branch count Deposits per branch CASA Retail TD Other TD Deposits Bank Securitization Borrowing Profile ROCE% Div Yld% ROE% ROA 12M%
1 AU Small Finance 705.85 54.05 20638.03 2% 7.90% 24246 19,428.9 408.0 47.6 21% 32% 47% 69% 3.50% 18% 39% 8.31 0.07 14% 1.50%
2 Equitas Holdings 138.35 26.79 4724.8 2.52% 8.10% 11835 8,828.0 392.0 22.5 26% 20% 54% 69% 2% 27% 67% 6.69 0 9% 1.50%
3 Ujjivan Fin.Ser. 357.95 28.84 4338.1 0.90% 8.50% 11089 7,359.0 474.0 15.5 11% 26% 50% 62% 2% 31% 37% 7.13 0.14 10.70% 1.70%

Sfb listing delayed

I am not sure what they were thinking. Last few years we have seen RBI taking necessary action against non-compliant banks. Hopefully Ujjivan will take lesson from this and speed up the process.

In this case it’s not their fault. They applied for listing to sebi on feb 7th , but still have not received a reply. Kindly see the below disclosure to BSE

SEBI refuses SoA as per some rules. Attaching both the disclosure and circular. Refer pg. 9.

SEBI_Circ_10032017.pdf (427.8 KB)

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Equitas seems to have been forgotten amidst all the cheer in the last 10-15 days, and is making new all time lows.
What exactly is driving down the price to such lows, despite good results and reasonable clarity on listing of SFB (by march’20). Currently it’s trading at a P/B of less than 1.8
Considering the SFB lists at P/B of 4.5-5, the stock is currently trading at a holding company discount of 60-70%, which seems too high!

There is a recent private placement done by the SFB to the tune of 250 cr. This PP forms 4.51% of the post-issue share capital.

Here are the details:

Based on the numbers in the PP, I have worked on the value of ESFB, EHL’s holding in SFB and compared it to the current market cap. to determine the current holding company discount. Have also made some assumptions on the upcoming IPO. These assumptions are purely speculative at my end and do not reflect the actual reality that may unfold. I have based these on the recent competitor’s IPO. Equitas may choose a different price to value their SFB and IPO dilution amount altogether and that will change the calculations.

Given that post IPO as per my assumptions, the SFB will be valued at 2x P/B we could see listing day gain if the market revalues the SFB at a higher P/B. I have assumed a P/B of 4 for the last column calculation, it conservative given its SFB peers and aggressive given at what the private banks trade at, make of it what you will.

I have also posted the link at the end for the sheet in case anyone wants to change the assumptions. The market cap figures are live so the holding discount will change as the share price changes.

You can assume a different holding discount to the post-IPO SFB market value and arrive at a value for the holding company.

Private Placement IPO Assumptions Listing 2x
Shares sold 47458239 136363636.4 183821875.4
Sell Price 52.68 55 110
Sale Value 2500100031 7500000000 10000100031
Post Issue % 4.51% 11.47% 11.47%
Equitas SFB Value 55434590477 65375901220 134440400122
EHL % 95.49% 84.54% 84.54%
EHL Share in SFB 1004830874 1004830874 1004830874
EHL Value in SFB 52934490447 55265698075 113649562355
Current EHL MCAP 3831.29 3831.29 3831.29
Holding Discount 27.62% 30.68% 66.29%
Total SFB Shares Post Issue 1052289113 1188652749 1372474625
ESFB BV on Sep-19 23610000000 23610000000 23610000000
ESFB BV Post issue 26110100030.52 33610100030.52 33610100031
SFB P/B (Post Issue) 2.12 1.95 4

PS: You should be able to download the sheet now and edit as per your assumption.

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EHL files DRHP with SEBI. Could not find the document on the SEBI site yet nor with any of the IBs. Will update the above calculations in the morning.

Good part is that they are coming with an OFS portion in the IPO. This will help in reducing the stake of the holding company which needs to be reduced to 40%.

DRHP of Equitas Small Finance Bank.

Will Buying Equitas now entitle me to apply for IPO under existing shareholder category ??

Yes. But you need to have at least one share in your demat account in the record before Equitas Small Finance bank RHP filing date to be eligible under shareholders category.

The draft RHP was filed with SEBI on Dec 16th. Would that be considered the record date for the Shareholder category applications?

If i bought on 17th December then i am not qualified for shareholder category application?

According to my knowledge you need to have shares in your account on the date of filing of RHP with SEBI. The filing date of Draft RHP (or DRHP) is not relevant.
You need to buy the shares before T+2 trading days of the filing date so that you get the credit of the shares in your Demat account a day before the record date.