Shares of Equitas Small Finance Bank Ltd (Equitas SFB) experienced a significant downturn, plunging 14% in Friday's trading session. This sharp decline contributed to a two-day fall of 24%, triggered by the unexpected resignation of Managing Director and CEO PN Vasudevan.
Vasudevan clarified that his decision was not prompted by any regulatory action. Instead, his resignation addresses long-standing investor concerns regarding a perceived conflict of interest. This issue arose from a key family member's concurrent involvement in running a non-banking financial company (NBFC), which many investors had previously flagged.
Market Reaction and Analyst Views
The news of Vasudevan's exit has sent the stock into a bear grip. Several brokerages, including Investec and ICICI Securities, have cut their ratings on Equitas SFB, while Ambit Capital issued a 'Sell' recommendation following the bank's September quarter results. On Friday, the stock hit a low of Rs 49 apiece.
Despite the immediate negative reaction, some brokerages maintain a positive outlook. Firms like Antique Stock Broking, HSBC, MOFSL, and Axis Bank are among a dozen that have kept their 'Buy' recommendations intact after the Q2 results.
Operational Performance and Future Outlook
Elara Securities noted that while Equitas SFB posted a better Q2 performance, the sudden resignation of its MD and CEO overshadowed the operational strengths. Analysts believe the bank's immediate priority is a smooth leadership transition, which presents a near-term overhang due to limited internal bench strength and the likely need for an external candidate.
Equitas SFB expects to identify a suitable successor and complete the selection process within the next three to four months, pending RBI approval. The underlying environment for the bank shows signs of improvement in both asset quality and business growth. Although business mix changes and liabilities pressure have put Net Interest Margins (NIMs) at a disadvantage, the ongoing rate hike cycle is expected to offer some benefit.
Equirus Securities highlighted a sharp margin contraction in Q2 as a negative factor and expressed doubts about the sustainability of the quarter's low credit cost. Ashika Institutional Equities also noted that Equitas SFB’s Q2 performance missed its estimates for Net Interest Income (NII) and Pre-Provision Operating Profit (PPOP).
Ashika Institutional Equities commented, "We remain positive on Equitas SFB due to its diversified Secured Retail book, reduced dependence on MFI, and a granular deposit franchise. The leadership transition remains a key monitorable."
The firm has adjusted its target price to Rs 70 from Rs 89, factoring in the leadership transition risk, but maintains a positive stance on the bank's fundamentals.