Whalesbook
Motilal Oswal Securities initiated coverage with a BUY recommendation on Equitas Small Finance Bank (ESFB), signaling strong investor confidence underpinned by the lender's robust third-quarter fiscal year 2026 performance. The brokerage firm set a target price of INR 80, reflecting an expectation of continued positive momentum. This conviction stems from ESFB's financial results, which showcased a significant year-on-year increase in profitability and improved operational efficiency.
Profitability Surges Amidst Margin Expansion
Equitas SFB reported a Profit After Tax (PAT) of approximately INR 900 million for the third quarter of FY26. This figure surpassed market expectations by 27% and represented a substantial 36% increase compared to the same period in the prior year [5, 10]. The bank's Net Interest Income (NII) demonstrated healthy growth, rising 4.1% year-on-year and 10.1% quarter-on-quarter to INR 8.5 billion, exceeding analyst estimates by 4% [5]. A key driver of this profitability was the expansion of Net Interest Margins (NIMs), which grew by 43 basis points sequentially to reach 6.72% in 3QFY26. This margin improvement was supported by a decline in the cost of funds, from 7.35% in the second quarter to 7.13% in the third [5]. These financial gains align with a general positive outlook for the banking sector in 2026, where stable NIMs are anticipated, although liquidity challenges may persist [20, 27].
Proactive Asset Quality Management and Outlook
Beyond profitability, Equitas SFB exhibited strategic asset quality management by selling Non-Performing Assets (NPAs) totaling INR 548.5 million to an Asset Reconstruction Company (ARC) during the quarter [5]. This proactive approach is crucial in the small finance bank (SFB) sector, which has faced challenges with asset quality, particularly in the microfinance segment [22]. Despite these sector-wide concerns, Equitas SFB's recent performance has led Motilal Oswal to fine-tune its earnings estimates. The brokerage now projects a Return on Assets (RoA) of 1.0% and a Return on Equity (RoE) of 10.5% by fiscal year 2027 [5].
The target price of INR 80 is based on 1.4 times the bank's estimated Adjusted Book Value (ABV) for September 2027, indicating a valuation that reflects expected future growth and asset quality improvements [5]. The bank's stock has shown resilience, trading in the INR 68-71 range around the reporting date, with a 52-week range of INR 50.00 to INR 73.40, suggesting investor interest following the positive quarterly disclosures [3, 4, 9]. Competitors like AU Small Finance Bank and Ujjivan Small Finance Bank have also reported strong quarterly results, indicating a generally positive environment for the SFB sector [18, 23]. However, broader industry reports caution that while loan growth is expected for SFBs, profitability may remain under pressure due to asset quality concerns and margin compression in FY2026 [22].