Uploading: Arman Financial - JM Feb 20.pdf…
Disc -I am one of the Top public shareholder in Arman and hence my opinion may be biased, hence please do your own due diligence
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The part-2 link is broken. This one works instead:
http://www.mydigitian.com/wp-content/uploads/2020/01/Newsletter-Nov-19-compressed.pdf
Disc: Biggest holding, average of 790, planning to hold for long.
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Thanks for pointing out and sharing the link
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Also the JM Fin report has not been uploaded/linked. Thanks!
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Day before yesterdays report of JM buy report on Arman Arman Financial - JM Feb 20.pdf (1.2 MB)
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NCD issue proposed for 38 Cr, Company is raising additional funds from the markets, looks like hopefully the growth remains strong!
In comparison, SAIF gave 56 Cr in Q4 FY18 for CCDs later made into 23% shares.
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Hi. What does thi mean?
Arman Finance
Key takeaways
Despite persistent macroeconomic headwinds, Arman witnessed strong growth momentum
for 9mFY20 aided by good traction in microfinance and MSME business, however being mindful of the headwinds and particularly in rural segment they have temporarily slowed
down disbursement in microfinance.
They are confident of sustaining growth trajectory, by focusing on scaling up business in
a calibrated manner with priority on quality of book and profitability.
Given the rising risk in the MFI sector, they have adopted conservative stance by of providing higher level of provisioning in the MFI book.
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I am closely associated with arman finance at very ground level…
Now my perception about this rapidly growing company is changing from postive to negative …
The reason is the
1)fastest growth itself …
2)Lack of 2nd level managent or very poor quality of employees…
- before 3 yr it has less than 100
branches, now it has more than
300 .While still the execution is going
strong but if growth in new branches is
not executed properly, it could be
challenge in future. Another
important aspect is as the company
grows in scale the corporate functions
have to play an important role which is not playing because of poor quality of employees and lack of 2nd line of management…
Disc.:- Invested & started profit booking…
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Bit late but this could be a good boost since now I realize Arman is 60% invested in dairy/milch animals. India’s dairy sector is quite different from others, 65% of milk produced is not processed but distributed locally, household consumption. Primary milk producer gets 70% of the value of milk, this may be because of sugar/agriculture like management by govt/co-operative culture. I picked this up since was invested in Parag recently and previously, long-ago, in Prabhat and Milkfood.
The company has raised 37.8cr through private placement from two Luxembourg firms where Deutsche Bank AG, Mumbai branch is acting as a custodian by allotting 378 Non-convertible Debentures having Rs. 10,00,000 face value each. The coupon rate is 13.15% payable semi-annually and on maturity.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/42f3f667-c484-44fe-84cb-a22a5fe03a39.pdf
I would like to share a snapshot from the FY19 annual report.
There are two key highlights:
- The company was confident of growth (which it has delivered in the last 9 months) even in the entire NBFC crisis.
- The last paragraph is particularly important as Mr. Alok Patel pointed out that their diversified debt structure and increased presence in the market would help them lower their cost of funds. This has happened with the NCD allotted yesterday. The coupon rate is at 13.15% and the NCD they were carrying on their books at the end of FY19 was at 14%. It is very important to keep a track of these small comments made by the management which have a huge and direct impact on their business. It indirectly talks about their internal targets and helps a shareholder judge the management’s ability to deliver on their promises.
Disc: Invested at lower levels.
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I dont think they have poor quality employees .I have interacted with many team members down the line in field .They dont have the sophisticated flair of a corporate professional (like a MBA etc ) .Having said that the guys are sincere and hard working .What is interesting is their loyalty to Arman .One of the reason is the promoters themselves and also because of ESOP schemes .Their Esop was granted at Rs 50 ,though small quantities were given but the internal feeling with them as if they are part owners of the company now . As investors /analyst people miss out softer aspect in an organisation .The culture their is of “ownership” ,"openness and transparency " & "cost consciousness "-these are not written anywhere but i picked up across the organisation working with people .From top to down the culture is of “collection” -"jo paisa diya hein woh wapas ana chaihiye " .Their focus is on collection and not on growth .Infact incentive of sales people is penalized if collection is less than 99.5%% .
I agree to your point of corporate function playing a bigger role as the company expands .This is one of the risk which I had covered in my article also last year .
P.S .I am one of the top individual shareholder in Arman for long and hence my opinion may be biased ,hence please do your due diligence .
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Do you consider corona as the black swan event you mentioned above. how this is going to affects its collection and disbursement?
Given the current scenario and the management’s history during demonetisation, the company must have stopped disbursements and will do so going ahead if the situation remains the same/gets worse. Stopping disbursement seems like a prudent move in a scenario where the borrowers might take loan for healthcare and consumption purposes rather than revenue generating needs. Given the past track record, the company will be pro-active with their collection efforts in times like these. Therefore, earnings could be hit in the next quarter(s). However, once this situation gets better, the company will revive stronger than before given the money it has raised recently. The positive ALM structure helps them face these black swan event without affecting profitability and balance sheet much in the short-term. It is very difficult to ascertain how this will play out and if economies will be pushed into recession, if that happens then even the management can’t give us a visibility of future earnings. That will create a situation of uncertainty and that is where most of the money is made (or lost).
Disc: Was invested at lower levels and sold my entire position last week.
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Yes Corona virus is definitely a black swan event .If you see the way the world market has come down ,its worrying and scary for many .Nifty and some quality stocks (ex Titan) have touched 52 weeks low today within a month of them touching 52 weeks high (all in one month !!).
I cannot comment on Arman’s share price but like you asked on their collection and disbursement -my opinion is they are extremely grounded ,knows fully well whats happening on ground ,picks up trend very fast and hence if they see any risk they will stop disbursement and focus only on collection (like they did in demon time ).I also think during this time of crisis ,like all other businesses fundraising at right price can become a problem and hence they may delay this .Given the ROE of the business is 30/35% they can grow the business for very long time at 30% pa + even without fund raise .
P.S Bcos of my large holding ,I may be biased ,please do your own research .I have further added Arman after the price drop .
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Thanks, Can you please explain, if you know, the loan disbursement criterias of Arman. These the loans are unsecured? What if people are not ready to pay the installments? Do they have a measured NPA till now?
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My post on this thread, where I said that I have sold all my holdings in Arman as I see Corona crisis 10 times bigger than demon, has been deleted.
I don’t understand why that post was spam. Can someone enlighten me?
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@DEBASHISH
Can you please explain how the loan disbursement criterias of Arman.
And how it will be impacted by current situation?
These the loans are unsecured? What if people are not ready to pay the installments? Do they have a measured NPA till now?
Management is extremely conservative (as Aalok ,Promoter CEO is a CPA and have worked in US during last global financial crisis ) …MFI loans by nature are unsecured I am invested since demon days and hence have been tracking this company very closely …40% mfi is in dairy. Business is still on. Remaining 60% in wide variety of profession, many times multiple professions. In villages main market is shut. But at personal level some are still selling their Agri produce for income. Demon Dec’16 collection rate was 80%. Lowest ever. .
Some updates :
1)Their collection cycle which was on 12th mar was not impacted at all
2) the next collection cycle falls after lockdown opens on 15th April which will obviously get impacted like all others
3)they have stopped disbursement and in April focus only on collections
4) Their loan loss was highest during demon period (which was at 4%),with current lock down ,RBI monetorium and growth ,they don’t expect that to happen
5) currently as of now cash of 80cr plus with positive ALM -longest loan tenure for customer is 24months and minimum loan repayment is 36months
in my view biggest risk is 1) if lockdown is extended beyond 21 days 2) political parties announcing loan waivers …let’s hope these 2 doesn’t happen otherwise many NBFC /MFI/banks and also other leveraged business will be in problem
They have started calling their borrowers for April collection and are informing them that they can’t come to collect now but will come after lockdown. Options are to collect wherever it’s possible or give moratorium for April.
Their collections are 52-55cr per month. Repayments are 42cr in April, 39cr in May. With 80cr cash balance they can make repayment. But will negotiate for moratorium with their lenders.
Cannot comment on share price …can comment on business with some probabilities …last year profit was 21 cr ,this year FY 20 may be around 45cr (bcos of lower Mar 20) ,FY 21 may be now with washout qtr1 ,profits will be somewhere in between 21 cr to 45 Cr(may be more towards 45 Cr) …no one can predict either price or business with certainty ,no one knows …if lock down opens and not extended ,then they should come back strong
In summary ,I think like all NBFC s and MfIs ,Arman will also get impacted but given their approach and the way they came back from all the crisis in past ,they should come out of this also …
Discl: I am one of the top individual investor in Arman ,bought more after price drop ,hence my views can be biased ,please do your own due diligence
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