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Monday, Equitas Small Finance Bank (NSE:EQUI) (EQUITASB:IN) experienced a change in stock rating, as HSBC analysts downgraded the bank’s shares from Buy to Hold, adjusting the price target to INR64.00 from INR73.00. The revision reflects concerns about the bank’s ability to significantly improve its return on assets (ROA) in the near future.
HSBC analysts pointed out that for Equitas to increase its ROA from 0.3% in the fourth quarter of fiscal year 2025 to the 1.5-2% range, the bank would need to implement effective profit maximizers. However, the analysts noted that the bank’s strategy of further reducing its microfinance institution (MFI) portfolio, adding more secured loans while facing high deposit costs, and maintaining investment mode to keep net non-performing assets (NPA) below 1% in anticipation of a Universal Bank license may not lead to a rapid recovery in ROA or return on equity (ROE).
The report suggests that achieving a 1.5% ROA could be delayed until the second half of fiscal year 2028. Consequently, HSBC has reduced its earnings per share (EPS) estimates by 28% and 30% for fiscal years 2026 and 2027, respectively. The analysts forecast that ROE will likely align with 10-12% during this period, which is closer to the cost of equity.
HSBC’s revised analysis indicates that the best-case scenario for Equitas stock is to trade at 1x its fiscal year 2027 estimated book value (BV). In light of these projections, the price target has been reduced to INR64.00, and the stock rating has been downgraded to Hold, signaling a more cautious stance on the bank’s near-term financial performance.
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