This stock rose 20% today; here's why

Share of Equitas Holdings Limited rose 20 per cent to hit a fresh 52-week high of Rs 138.40 after the bank announced it has received Reserve Bank of India's (RBI) nod to apply for amalgamation of the promoter into itself.

"In the case of Equitas Small Finance Bank Limited, our subsidiary for which the company is the promoter, the said initial promoter lock-in for the company expires on September 4, 2021. Hence, the bank had requested RBI if a Scheme of Amalgamation of the company with the Bank, resulting in the exit of the promoter, can be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the Initial Promoter Lock-in expires," Equitas Holdings said in an exchange filing.

Equitas Holdings held 81.98 per cent stake in Equitas Small Finance Bank (SFB) as of March 31, 2021.

The stock opened 17 per cent higher at Rs 135.10 against the previous close of Rs 115.35 on BSE. With a market capitalisation of over Rs 4,600 crore, the share stands higher than 5 day, 10 day, 20 day, 50 day, 100 day, and 200-day moving averages. It has delivered 123 per cent return to its shareholders in one year and risen 95 per cent since the beginning of this year.

As per the Small Finance Bank (SFB) licensing guidelines of RBI, a promoter of SFB can exit or to cease to be a promoter after the mandatory initial lock-in period of five years (initial promoter lock-in) depending on RBI's regulatory and supervisory comfort and SEBI regulations at that time.

"RBI has conveyed that any 'no-objection, if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of the license, or any other applicable instruction," it added.

The company further said it would be initiating steps to finalise the Scheme of Amalgamation, submit it to the Boards of the company and the bank for approval, and take further action thereafter in accordance with applicable regulations and guidelines.

According to MarketsMojo, the stock is trading at a discount compared to its average historical valuations and its valuation seems to be very attractive. Over the past year, its profits have risen by 131.3% and the price/earnings to growth ratio (PEG) ratio of the company is 0.1. It also noted that the company has a strong long-term fundamental strength with a 24.72% CAGR growth in operating profits.

The technical trend has improved from Mildly Bullish on July 7, 2021, and the stock is technically in a Bullish range now. It has generated 22.79% returns since then and the multiple factors for the stock are Bullish like MACD, Bollinger Band, OBV and KST.

However, it noted that the company is borrowing more to fund its operators as the debt-equity ratio of the company has increased to 6.88. Also, the company's income from non-business activities is high which is not a sustainable business model.

Equitas Holdings posted a net profit of Rs 85.77 crore for the quarter ended March 2021 as against a net profit of Rs 15.56 crore in March 2020. Net Sales stood at Rs 947.66 crore in March 2021 compared to Rs 790.21 crore in March 2020.