Here are few points from my side on first look. Would like to get some clarification if someone can help.
1). From overall AUM - Wholesale Credit consist - 19% Vs Retail Credit - 81% ( total AUM 96.79 Rupee bn) - page 10 of FY14AR
2). SME Loans forms the bulk of AUM - close to 61.85 bn out of 96.79 (page 11 of FY14AR).
Q.1 Can someone clarify, if SME financing is also considered as part of retail credit ?
3). No. of live customers in FY12 vs FY14 is 83,544 vs 5,73,506 , which is net addition of roughly 5 lac customer in past 2 years, or >5x of what were live in FY12. (page 12)
4). While the number of customer jumped >5x during last 2 years AUM increased only by 0.5x from 61.85 bn to 96.79 bn.
5). In last 2 years SME loans have gone up from being ~44% AUM to ~60% of AUM (roughly from 27.50 bn to 61.85 bn). Mgmt. focus is clearly on MSME financing.
Q.2 Somehow these numbers don’t add up for me, while the bulk of AUM is in MSME financing, what is making the number of customer go up so rapidly and disproportionately to AUM growth ?
-The Company primarilyextends Mortgage Loans to its MSME customers.
Q.3 Should we be considering these mortgage loans (LAP) for MSME at par with mortgage loans for individual borrowers for dwelling units ? Mortgage loans for salaried individuals are mostly done on basis of Form16 (to gauge future earning ability) of individuals and attach lesser importance to property value. While LAP’s to MSME will have to be more accurate about the property (or plant & machinary) valuation and also future cash flow estimation of the company. That’s not so easy and requires lot of back end work. Also, in any case, what kind of property will a MSME be holding ? industrial sheds ? How easy it will be to liquidate such property in case of a default ?
Q.4 IMHO, the NPA numbers available for the business are for a very short period of time to draw any conclusions about the robustness of the model. True NPA numbers and robustness of model will have to be proved over a longer period of time. Remember this is lending business, return of money is equally important or more important than return on money. So what makes us so optimistic in so short period ?
Q.4 if the answer to Q.3 is mgmt and holding structure. Some industry people believe, having a veryaggressiveperson heading a lending business is not necessarily a good thing.