any one talked to mgmt on provision spike? thanks
Interesting article on satin
disclosure: invested ( more than 10% of portfolio)
Thanks for this link. While I was positive on this company I was wondering about the other side of the coin and this article by Vivek could be the starting point. Nice job actually.
To sum up, the issues/risks that I can gather are:
- So, the promoter is benefitted through a private subsidiary which is in the same field almost and pays 10% to Satin and from FY17 the contract ends. Conflict of interest. Vivek puts this nicely further and the other āwake up alertsā on this story.
- Recent pledging of share by promoters for business purposes. Though pledging by itself is not an issue, pledging in a financial sector company could cut you badly if a black swan event happens and given that Satin is still an illiquid stock on the exchanges.
- The other risk I could come up with is, the loans are not backed up by assets like for housing finance (appreciating asset) or vehicle finance companies (depreciating asset). I think this is what other members meant by āriskyā nature of the loans given out by Satin or for that matter NBFC-MFIs. This risk is compensated by high spreads/NIMs.
We need to evaluate both side of a coin and take a decision based on risk-reward adjustments and personal risk profile and portfolio allocation.
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Most of their loans are given for income generation purpose, So that act as a risk mitigation as well. Apart from above ones we should consider two more risks
- Geographic concentration - A bad year for UP Agri economy will impact company as 40% revenues come from a single state, good thing is that they have started expanding into other regions
- Explosive growth - The management is expecting 50% AUM growth in next couple of years, One needs to watch out if their lending mix or credit assessment take a hit
Disclosure - Invested, Traded in last 30 days
The biggest risk i could see and from history of SKS is more political in nature where the politicians could gather people to not pay and the government has to relent. This could be due to calamity or any unforeseen event. It is very area specific which can be across state (less possibility in current times) or smaller area in a village or taluka. The amount of loss in such an area of village or taluka level is generally very small. (eg: Speaking to a MFI gave this exact reason for a rise in NPA that the loan was in very small area and amount of about 4 lakhs where people didnt pay as some local leader had some vested interest for his own business.)
The denomination of the loan ie: 15k to 40k is generally very small and even though it is not assett backed doesnt hurt much. Moreover this days there are also credit checks before giving loans, MFI companies internally do adhere to this and loan takers are generally aware that not paying will lead to no further loans available and hence reluctant on defaulting. This income generating loans are more critical for them then asset buying loans.
Lastly, the lower strata of people who avail this loans are probably the best in loan repayments. This is from experience and market knowledge.
Disc: Not Invested
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On the political risk, I guess till elections in UP get over this will be a
big threat.
I understand that recently RBI introduced certain changes in MFI, which ensures that they are not politically impacted. I read this at couple of reports do not have the link right now, but some one can correct me.
Disc: invested just for tracking purpose
Major change has been in the form of giving banking license to MFIās. This has brought them under the RBI purview away from state regulations. The Ambit report posted above covers all the aspects of risks. Personally not aware of any other recent RBI regulations. @ankitgupta @desaidhwanil
My understaning is RBI can do litle if a politician asks his village/state
to stop paying and people follow him. That screws up the future borrowing
potential of the people in the long term but mfi bear consequence near term.
Disc: invested
Satin has materially underperformed microfinance and nbfc in the current rally. Any thoughts by fellow boarders on perceived issues would be helpful. Thanks.
Satin got listed in Aug 15.It can do QIP only after Aug 16 post 1 year of listing .Wait till then.There is instl interest in QIP.
Thanks Vivek. Satin, inspite of the better growth trajectory in underperntrated market, trades at a significant discount on P/E to SKS (adjusting for the normalized tax rate for SKS). Hence I was curious.
Why will QIP help? Will it improve liquidity?
QIP will strengthen equity n reduce leverage.
Satin has got highest promoter contribution as high as 35-36% vs 3% for Vasudevan of Equitas n 1% for Sam Ghosh of Ujjivan.
Promoter HP Singh is a CA 25 year back(when pass %age used to be 1-2% amongst CAs)N his younger brother MBA from IMT GZB.They are school mates of Arun Jaitley and host of equally well known alumni.
They are first gen entrepreneur coming from service class back ground and have good reputation in Delhi & in MFI circles.
Discl invested since Oct 15.
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Thanks Vivek. I read in the disclosures that number of share owners are <2500. The illiquidity explains the mispricing. Its a compunding machine so time is a friend even if liquidity is delayed.
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Interesting commentary from SKS in a conference earlier this month āOverall, the company is seeing some pull back from market for many of the small finance bank licenseesā. Should benefit the non bank licensess - SKS and Satin - in the next 2-3 years. Specially Satin as they grow in under-penetrated geographies. I expect >75% AUM growth trajetcory.
which conference was this n cud u post more details on it
CS conference earlier this month. Canāt post the note but thought this was
imp takeaway. Other imp thing was expectation of year round PSL sales as
opposed to bunching in q4. Nothing else new, trends continuingā¦
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interesting that almost all brokerage house have written about equitas and now ujjivan but none added satin credit in their reports while comparing with other businessā¦ wonder why