Satin Creditcare Network Ltd - Reaching out!

@peguy Thank you for reply

These Nov, Dec, Jan repayments, which are still not collected, shall be categorized as NPAs.

Though, as collection efforts will still be on to recover these bad loans, i believe Satin will be successful in recovering most of these in next few months. Rationale - the original reason for these becoming NPAs in first place was demonetization cash crunch and the political situation during the same period. With all these factors taking a back seat now, there is no ‘incentive’ for a borrower to not pay such small amounts and thus deteriorate his credit history. These people (borrowers) probably understand that they will need to borrow again and will have to come to the same lenders. So, NPAs might rise in q4 result, but should come down going forward to normal levels. So this could only temporarily effect BV.

Regarding farm loan waiver, decision is going to be taken soon. Institutions will be repaid by the government, so no risk there, but what’s bad in all this exercise is setting the wrong precedent. People who have paid will feel cheated, and would be ‘incentivized’ to stop repaying before election in UP and other states.

Please correct me if i am wrong.

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Ujjivan’s BV per share at Dec 16 stands at Rs. 146. Hence its trading at ~ 2.9 Book.

UP Waiver bill 36000 crs. Who will pay back now ? All the people who are related party beneficiaries will just refuse to pay now, expecting govt to pick up the tab.

HC has asked Tamil Nadu to annouce Loan Waiver for Farmers. Punjab is already clamoring for it…

I am not sure with Karnataka and Gujarat election being near…the same thing will not be repeated there…

Government is setting a very bad precedent here. They should help farmers in different ways rather than one time loan waivers. After all this is public money, which government is getting from a small section of public (tax payers) and they are using it for political benefits. Worst thing is, those who are paying their loans on time will be incentivised not to pay those on time around elections.

Anyways, i was expecting this decision, only what was left to be seen was the amount, which has now been declared (36k). Had they not done it, it would have been a spoilsport for 2019.

Now how institutions like Satin are going to be effected. Mgmt has in his recent interview talked about this unfortunate situation. -

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Mr. Singh’s troubles don’t seem to end anytime soon.

Rgds
RR

36K crores of farm loan waiver in UP has opened a can of worms for financial institutions. It is true that PSU banks and Cooperatives which gave the loans to farmers would not get any direct hit on their balance sheet. In fact some of this loan which anyway was already classified as NPA would return to their books. However the worry is about setting the precedent. It is extremely worrisome that almost all political parties are pushing for such waivers in all impact areas. Urjit Patel today spoke about this worry and cautioned that it would lead to not so great future http://www.moneycontrol.com/news/business/economy/farm-loan-waiver-promises-a-moral-hazard-must-be-avoided-urjit-patel-2254065.html

Satin had series of things going against it in the last few months. It started with Demonetization, politicians spreading rumours about loan waivers and then finally government actually waiving off the loan. There is almost no doubt that it would have repercussions on the ground impacting collections. The degree of impact is hard to predict but going by whatsoever history available when loans were waived off in the past, it should not have tangible and sustained impact.

Personally I felt good about management bringing it’s own capital on the table in such situation. I also feel that known devils for the business have popped up one one, and now they are behind us. I expect marginal growth in the loan book in Q4. Why? Per management commentary 1000 to 1100 crores was to be disbursed in Q1. Average collection per month normally should be in the range of 250 crores per month for a 3.5K loan book. So in Q1 about 750 crores would have been collected and 1000-1100 crores disbursed, resulting in marginal growth in the loan book.

Cheers,
Krishna

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anyone attended agm?

Mr. Singh’s speaks about the business situation on 11/04/2017

  1. He said it is still early days to understand the impact of farm loan waivers but since its implementation, collections have slightly improved (so saying, there is no impact, and customers understand the difference between MFI loans and other loans).

  2. Regarding impact on other states, he repeated the same thing that it will not have any major impact on MFIs.

  3. He is repeating his previous stance on AUM growth this year. No change on that front.

  4. ADB has bought in 4% stake and promoters 2% (through warrants). Percentage of warrant money should legally have to come in within 18 months, though he says it won’t take that long.

  5. Demonetization is behind us. Impact is there but we are gradually improving collections.

  6. CAR is now more than 30% (24% tier 1, and rest Tier 2).

  7. Expansion - Current branch count - 570. They opened 60 branches last year and are planning to open 100 more branches this year. Focus is on West Bengal and Orissa.

All in all, he is sounding positive.

Disclaimer: Invested.

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@kkrai @Vivek_6954 - Guys, did some scuttlebutt regarding MFI working and loan offering mechanisms. What i came to know is that leniency is creeping in in offering loans due to the pressure to expand loan book. Targets are intense! Well, this is not specific to Satin, but applicable to almost all NBFCs and MFIs. At the moment, NPAs are under control, which is why this issue is not visible in numbers, but almost anyone can get his/her loans approved these days due to intense competition among companies without proper scrutiny about his credit worthiness. Your thoughts on this?

Even though, JLG, SHG falls under unsecured loan category, Recovery is far better in those as compared to other type of loans. But when they over finance the group without scrutinize, then real trouble arises.

Disc: Invested

Mridul,

Thanks for your observations on the aggressiveness of target AUMs chased by MFIs. Vivek is far more knowledgeable than me and it reflects in his understanding of businesses, moats, challenges, special situations, IPOs and finally through return on his investments. So please take my words here from someone who is just putting down opinion but not necessarily super qualified to do it.

Like any other loan MFI financed micro loans have certain unique characteristics. Some of them are

1-The tenure of an MFI financed loan is between one and two years, or on an average 18 months. The loan amount ranges from few thousands to up to one lac.

2- The percentage of individual loans are significantly lesser than group loans.

3- There is sufficient history which indicates that unless political class interferes the loan takers have returned money.

4- Because of shorter tenure of loans, companies like Satin have so far in their operations seen ‘full life cycle’ of hundreds of thousands of loans. Which means, the loan getting sanctioned, disbursed, EMIs being paid and the final closure of the loan. While going through the full life cycle of these loans Satin has still managed to keep GNPAs to an acceptable level. The
demonetization has definitely thrown some interim challenges but there are data backed indications that they are coming out of the wood. The farm loan waiver is the newest challenge and while H P Singh sounded positive we should trust him but verify with data.

5- The MFI industry periodically goes through major hiccups because of variety of reasons. Some more recent ones have been political interference, demonetization and loan waiver schemes from government. I would assume that the weaker MFIs would go bust and better managed ones would come stronger after these hiccups.

Now, I agree with you that there is whole lot of pressure on chasing big targets building mammoth AUMs overnight. But my sense is that companies which would just go sanctioning loans without due diligence would belly up very quickly because of point “5” above. My assumption is that companies like Satin who have been in the business for some time now understand this point well. And since they understand the risks of blind loan sanctions
well so they have been able to manage bad loans well so far.

Finally, good or bad, Satin has not been able to grow its AUM fast in the past year. As indicated in my previous post (and H P Singh said in his interview two days ago)the AUM would be about 4K crores. They want to go to 5.5K crores in one year. With diversification in two new states and little growth in the year gone, I think things should be ok.

Disclosure and disclaimer: I own shares of Satin. This is not a buy or sell recommendation.

Cheers,
Krishna

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Hii, Is it right time to invest in satin as it is much lower than its high, can averaging should be done if someone have invested in higher price?

Collection efficiency improved post farm loan waiver in UP: Satin Creditcare

See Ujjivan results, collection efficiency are woeful in UP, MP and Maha, certainly a 2-3 quarter recovery atleast. Tread carefully

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mr. singh said collection efficiency is close to 90 odd percent till apr 16. reg. 4% rise…it is for UP past farm loan waiver. but overall it is still around 90%. q4 will be very bad in term of npa…even q1 will be pretty bad…sole assurance is that adb and promoters have subscribed at 415 and 455…close to 4% shares. I am still positive on MFIs but this is going to give chance to add at lower levels.

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New credit ratings from CARE gone from Stable to Negative in view of UP developments as per latest disclosure to exchanges. Rating_updates_april_29_2017.pdf (1013.7 KB)

Disc: 3% of PF

Have been tracking this one and feel that final purge will come after the Q4 resuts post which the share will bottom out. The sense is that if Modi needs to win 2019 they need to deliver on UP agenda by Dec2018 and which means more local govt spends and visible infra changes to the people there, it not really a 5 YearMandate. QIP by ADB @415 is an elusive comfort I feel. I’ll be an investor between 300-340 for an year. Not invested but have a strong gut feel.

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Q4 results.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/b0916461-c3f4-4a92-90a3-38a7912e36b2.pdf

Investor Presentation
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/dbfe3f22-ec95-49fa-8e05-62b1ebd849fd.pdf