Arman Financial Services Ltd

(Venkatesh) #41

Does anyone have a comparison of NIM, NPA, RoA and RoE for SKS, Satin Credit Care, Capital Trust and Arman. If yes can you please share it.

(Ankit Gupta) #42

Namra (Arman’s 100% subsidiary and the holding company of MFI business) raises Rs.5 crore of non-convertible preference share capital from UNIFI Alternative Investment Fund. This will help Namra in improving its capital adequacy ratio and help in raising more debt to grow its business.

Announcement -

(Venkatesh) #43

@ankitgupta any views on the poor Arman results???

(Ravindra Mutyala) #44

Lets see the Management call.
No correction in stock price today means Market not seeing any negative.

(Ankit Gupta) #45

Hi Venkatesh,

One the first look, the result do seem a bit disappointing. Management commentary on higher employee, other and finance expenses will give us more clarity on the results. Let’s wait for the press release to come out. Also, they are hosting a concall on Feb 11th at 11 am which will give us more clarity on issue.

(Gaurav Agarwal) #46

So we all know that Microfinance sector is firing all cylinders. On the same line Arman is also growing at scorching pace.

Results declared today available on BSE website. Gist is

Revenue grew from 30cr to 42cr
Net Profit grew from 6.15cr to 8cr on consolidated basis.

Added point is management is very conservative and focus on quality of AUM rather than just increasing it.

Small player still available at reasonable valuations.

(Ankit Gupta) #47

Arman came up with pretty good results with net interest income increasing by 40.09% on a year on year (y-o-y) basis and profit after tax (PAT) increased by 82.48% on a y-o-y basis. The press release is awaited which will give good insights about the growth in MFI and 2-wheeler financing business as well as delinquencies. The concall will also provide updates on the future road map and growth plans. We can get the performance of the MFI segment from MFIN report -

The gross loan portfolio for MFI segment (Namra) has grown by 85% on a y-o-y basis driven by increase in the average disbursements from Rs.13,397 per client for FY15 to Rs.17,475 for FY16 and addition of new clients from 0.83 lakh as on March 31, 2015 to 1.03 lakh as on March 31, 2016. With higher vintage of old branches and increasing loans per client, the productivity ratios are also increasing.

(Rupesh Tatiya) #48

Thanks for finding many gems and helping investors like me.

I would like to solicit your views on following two things -

  • Can AP crisis in 2011 happen again? Is MFI industry regulated enough to avoid repeat? (Thanks for putting RBI guidelines above, they are very helpful. I’m seeking your thoughts).

  • How do you judge Arman’s management on the parameters that caused SKS and other players to face loss in 2011? (Over aggressive lending, pursuing of high growth rate at any cost etc.)

Some links that I read -

Looking forward for your response.


(Rupesh Tatiya) #49

Also, I found following two red flags in the company, would appreciate your comments.

Related Party Transactions

Interest Rates on Borrowings


In FY15, management provided loans of 1.75Cr to company @ interest range 15-18%.

Also management issued 30L CCD to itself which can be converted at any time within 48 months. The total shares outstanding are only 57L. So That would be significant equity dilution whenever conversion happens.

Prima facie, this looks like management is favouring itself (siphoning off money?) unless I’m missing something. Please let us know what you think.


Disc - Not invested


Hello Rupesh,

I think we ought to understand the following:

a) 1.75 crores is not a large sum of money. A lot of times company needed money and the bank procedures take time. Also the interest rate during that period of time was also nearly the same. It has come down now and it will be interesting to see how this has changed in this year’s AR.
b) As far as warrants are concerned I do not see anything wrong. Company has followed SEBI guidelines around the same. Most companies which are growing do that. In hindsight we might find that the valuation was cheap but at that point of time the SEBI requirements must have been followed. Ofcourse our own assessment of value should be made keeping in mind the allotted warrants.

I think we can ask both these question to the management and see their response.

Discl. Invested

(Ankit Gupta) #51

Hi Rupesh,

  • AP crisis - I dont know whether it can happen again or not. But the industry seems to be better prepared for it post recommendations by Malegaon Committee report and regulations by RBI. The industry has rules like interest rate capping, not giving loans to individuals who have already borrowed from two MFIs (I remember an industry insider telling me that before AP crisis some borrowers had taken loans from as many as 20 MFIs), credit bureaus in place etc. However, the MFI bill is still pending to be passed and if RBI becomes the permanent regulator, regulatory clarity will improve further.

  • Arman’s management - As far as my understanding goes, Arman’s management is conservative in their lending practices. I have personally met them twice and really like their conservative approach. They just don’t want to grow for the sake of growing which can be seen from their growth rates which have been just around average growth rate from industry despite being a relatively smaller player whereas a much bigger player like Janalakshmi still grows at 194% during FY16. They want to operate in the areas where there is not much competition and still don’t want to be the first entrant in a particular area (they usually try to be 4th or 5th MFI to enter a particular area).

(Ankit Gupta) #52
  • Unsecured loan from promoters: As Anant has pointed out, due to its small size, the company cannot satisfy all of its borrowing needs from banks as there is a lengthy process which is followed before sanctioning (it takes months to get a new loan or cash credit sanctioned). This leads them to borrowing from NBFCs and even unsecured borrowing which is relatively costlier compared to bank borrowing. Also, you will need to look at the quantum of such loans in overall scheme of things.

  • Compulsory Convertible Debenture: The CCD were to be issued in Namra and that is why it is reflecting in consolidated as well as Namra’s balance sheet (not in Arman). There were also share warrants (sweat equity) of Rs.42.18 lakh issued in the company as on March 31, 2016. This was supposed to lead to dilution of 18.67% (8.67% through share warrants and 10% through CCD) in Namra to promoters (currently it is 100% held by Arman). However, some of the shareholders (including me) raised the concern about the same with management and they cancelled both which is also reflected in their balance sheet as on September 30, 2015 where you can see there is no money received against share warrants of Rs.42.19 lakh as on September 30, 2015.

(Rupesh Tatiya) #53

Thanks Ankit and Anant for your responses. I felt like bringing out these negative points in the VP thread to maintain balance.

Good to know that management has withdrawn 42L worth of share warrants after investor complaints.

Also, it seems that management is trying to gain majority shareholding again in the company and that means they have a good plan for growth. After conversion, management’s share would become as (17L + 30L) / (57L + 30L) = 54%. I would have preferred if they would have done buyback or bought shares from open market, but still I think they are confident of growth.

FY16 has NP of 8Cr and Assuming total number of shares = 57L + 30L = 87L, EPS comes out to 9.2. For CMP of 176, PE ratio works out to be 19. For a company growing at ~30%, I would say that’s little undervalued.


Disc - Not invested

(Ankit Gupta) #54

Hi Rupesh,

Both the CCD and warrants were planned to be issued in Namra (the company which does MFI business) and not Arman which is the holding company of Namra and also does two wheeler financing on standalone basis and is the listed entity. So the dilution you are working on is for Arman and not Namra.
The dilution anyway hasn’t happened. Also, most of the analysts usually value a finance company from book value rather than EPS.

Disc - Invested

(Gaurav Agarwal) #55

Hi @ankitgupta Thanks for bringing forth that management withdrew issuance of CCD & warrants because of investors objection. This points to good corporate governance practices. But I could not find any announcement to such effect by management.

Also I am confused by the latest Shareholding pattern of company on BSE website which states Grand total of nos. of shares held is 57,20,179 whereas the Q4 Fy16 results states paid up equity share capital as 692.47lac = 6.9247cr therefore number of shares will be .69247 shares.

Can you help where I am missing something?

(Ankit Gupta) #56

The company has 69.24 lakh outstanding shares which includes 12.04 lakh of Class A Ordinary Shares issued to private equity player, Incofin, through its series (RIF North West - 2). The Class A shareholders are entitled to one vote for one lakh shares unlike the remaining 57.20 share which are entitled one vote for one share each. I think this was done so that the promoters continue to have higher management control over the company since the dilution to the private equity player was quite big at 24.99%.

(vaibhav) #57

Attended the conference call today:

Disbursements for MFI were 183cr in FY 16. Target for FY 17 is 310 cr.

Disbursements of 2 wheeler loans were 61 cr in FY 16. Target for FY 17 is 80 cr.

Out of overall borrowing, 61% is done from Banks. Aim to increase it to 70% going forward to reduce the borrowing rate.

Average borrowing interest rate is ~15% and interest rate for lending is 25.x%.

Average MFI loan size is 16.8k , tenure is 1 year.

1.26 lac people borrowed this financial year compared to 1 lac last year. 65% people come back to borrow again and 35% people borrow once only.

Disc: invested today.

(Venkatesh) #58

Where is the company’s FY16 balance sheet. Why is it not part of their results shared with BSE?

(Ankit Gupta) #59

They are given as Form A on BSE. The link:

(Amitayu) #60

Hi Ankit , Is balance sheet not mandatory for every quarter ? I observed companies provides balance sheet only half yearly basis…