Equitas SFB shares tumble 27% in 2 days on CEO exit. More pain ahead?

ETMarkets.com

While announcing the company’s Q2 results on Thursday, the lender also announced that it has received a letter from Vasudevan, conveying his intention to step down from his position to pursue certain personal and social initiatives. The shares of the company tumbled 12% after the announcement to close at Rs 57.17 apiece.

Also read | Equitas Small Finance Bank chief PN Vasudevan plans exit over perceived conflict involving daughter's NBFC

The stock is today extending losses, falling another 17% to trade at Rs 47.32 apiece. The company's shares have fallen more than 27% in just two consecutive sessions, wiping off more than Rs 2,000 crore or 27% of its market capitalisation to push it below Rs 5,415 crore.

What Equitas SFB CEO said in his resignation letter?

Equitas CEO and MD PN Vasudevan in his letter dated October 29 explained the reason for his decision to exit the company. He said his daughter is the co-promoter of an NBFC which received its licence from the RBI in 2023. “My being the MD of a bank and my daughter being the co-promoter of an NBFC are within the regulatory framework of the Banking Regulations Act,” he noted.

In his investor meeting over the past three years, Vasudevan said he has been repeatedly asked about the perceived conflict of interest. He said in reality, there is no conflict of interest, since there is no transaction at all between the bank and the said NBFC, except one short term deposit about 2.5 years back, which was duly repaid on maturity. There are no other transactions including any loans by the bank to the NBFC, according to the executive.

“Inspite of my explaining the above to investors, the perception of conflict continues to persist. I am told by investors that this ‘overhang’ is causing the stock to underperform, impacting value creation for both shareholders and employees. Sometimes perceptions are stronger than reality,” he wrote.

Vasudevan said it is important to remove what he called the ‘overhang’ arising out of the perception issue. “Accordingly, I would like to step down from the bank. I am sure that

with this ‘overhang’ removed,the stock should reflect the financial strength of the bank, benefiting all stakeholders including employees,” he wrote.

Also read | Equitas SFB may identify new CEO sooner than a month

JM Financial on Equitas SFB CEO exit

JM Financial noted that Equitas SFB reported a healthy set of Q2 earnings, which was marred by the MD & CEO’s decision to step down. “However, the MD & CEO’s decision to step down adds near-term uncertainty. The board expects to complete the succession, including regulatory approval, within three-four months,” the domestic brokerage said.

It noted that beyond the leadership transition, the key factors to monitor will be asset quality metrics and elevated reliance on insurance distribution income (7% of PPoP versus 4% for coverage banks). The brokerage maintained its ‘Add’ rating on the shares of Equitas SFB but reduced its target price to Rs 65 apiece from Rs 77 apiece, with the latest target price implying 14% upside potential.