Equitas Holding is a leading player in microfinance segment with approx 5.5% market share. The company also operates in pre-owned vehicle, MSE and affordable housing segments. The company is in the process of converting itself into a Small Finance Banks (SFB), which gives the company access to low-cost funds coupled with wider scope of cross selling opportunities.
Reliance Securities has recommended 'Subscribe' to IPO of Equitas Holdings. Commenting on the investment rationale, the stock broker said, ''Post the fresh issue of Rs 7.2 billion the company will be trading at a valuation of 1.8x P/ABV which looks reasonable considering its strong growth potential. However, Equitas SFB may witness a fall in its RoA and RoE in medium term due to transition into SFB.
We expect the new bank to deliver ROA of above 2% in next 2-3 years. Although, FII will not able to participate in the IPO but they can acquire the stock post listing, as post listing FII holding will fall below the 49% limit set by the RBI for SFBs. This may inturn create liquidity and fresh buying support on the counter upon listing. We suggest Subscribe from a long term perspective.''
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