Shalibhadra Finance - microcap NBFC, growing steadily

(alok) #42

The numbers look good indeed. Following questions come to my mind

  1. The promoter/s seem quite grounded and having the pulse of the market. It seems like a one man show. ( with other family members involved as passive shareholders) do you have more information on the promoter/chairman. Does it not make it more risky for the business to depend on one man.

  2. Do they have other businesses or rely only on this business , how come the salary is negligible. Even dividends would not be enough to sustain them.

  3. Who are the other shareholders apart from the promoter group. Are they related parties.

I think for such a small company , one should know the promoters or at least know more about them from the market they cater to.

(ManavBansal) #43

Will try to answer to the best of my ability

  1. The Chairman and MD are important but decision making is mostly decentralized, power is given to the branches to make loans and check collateral with an supervision and reporting happening from top management, I think it would not be accurate to say this is a one man show, I think top management instills culture which is their most important job, if you were working in a company where you knew that the promoters do not earn a salary, what would that tell you about how much they would be respected, this company got listed in 1995, promoters have been hale and hearty for 21 years, lets pray for their continued good health :grinning:

  2. I am very sure they have other sources of income, they have been using their personal funds to grow the business with no outside capital, I do not think this would be possible if they were not cash rich, it is not as if the salary is negligible, in the words of the finance manager I interacted with, promoters do not take even one naya paisa as salary since 1995 :flushed:

  3. below is the list of large public shareholders and their basic profiles -
    Amidhara Agencies Pvt Ltd - this is a promoter family owned company - 4.98%
    Fineotex Chemical Ltd - this is a listed company - 3.64%
    Sharda Gupta - Large successful HNI Investor - 1.72%
    Dhiraj Valji Khaniya - Mumbai based Gujarati Businessman - 1.2%
    Minal Agencies Pvt Ltd - Investment company of Mumbai based Manoj Jhaveri - 3%
    Tenet Bio Pharma Pvt Ltd - Mumbai based pharma player - 1.18%
    Jainam Share Consultants Pvt. Ltd. and Choice Equity Broking Pvt Ltd - Gujarat and Mumbai based stockbrokers holding shares on behalf of HNI Clients - 1.1% and 2.5% respectively

Some might be related parties, some might not be, but most of them are Gujaratis based in Mumbai

I would like to point out one thing, to you and me this is a new company but looking at the way outstanding shares are held, this is a discovered company for the smart desi kind of money, I have seen this pattern play out over and over again where almost all of the free float is held by local guys who might be known to management or who might have the kind of insights we could only hope for, this to me is a very strong positive signal of pedigree

I want to point out an interesting stat

As of June 2015 Promoters hold 51.39% of the shares
As of June 2015 Public Corporate Bodies hold 24.36% of the shares
As of June 2015 Public Shareholders with more than 1 Lac Amount hold 15.54% of the shares
As of June 2015 Public Shareholders with less than 1 Lac Amount hold 8.71% of the shares

As of September 2011 quarter
As of September 2011 quarter Promoters hold 46.89% of the shares
As of September 2011 Public Corporate Bodies hold 11.99% of the shares
As of September 2011 Public Shareholders with more than 1 Lac Amount hold 10.34% of the shares
As of September 2011 Public Shareholders with less than 1 Lac Amount hold 30.77% of the shares

What has happened is that smaller stock holders have got sucked out and replaced by larger shareholders, this is a very eye opening thing, smaller less informed and less sophisticated investors being replaced by larger, more informed and more sophisticated investors

Smaller Lot shareholders declined from 30.77% to 8.71%…Wow

(manish) #44

Hi Manav
Good pick.
The financials were looking good but initially being a 2 wheeler finance company i was not interested as there is stiff competition and most of these companies are not doing well.
However, your clarifications helped and looked at the AR. looks interesting.

(ManavBansal) #45

Hi manish

I hope you do more research on this idea and add value to the thread

I think that would be great :smile:

(Ramesh) #46

Disc - not invested.

Good find @ManavBansal. Have gone through the FY14 AR - based on that and my real life experience of working closely with a financing business in the past, I have some comments & questions.

  1. One of the oft-repeated points in many comments above is about the “well capitalised balance sheet”. While this can be viewed as a strength in one way, from what I can see this is a weakness (& hence opportunity) because this is an indicator that the company has not been able to raise enough debt to support its growth. Simply put, banks are not giving it term loans which it needs to run and grow its business. The entire operation is run from the promoters’ money (plus a bit of cash credit from banks, which is always high cost debt). We can call a balance sheet well capitalised if the company had been leveraged 2-3 times and then the promoter pumps in equity to bring down the D/E, thereby enabling growth. That is not the case here. The most likely reason they went for credit rating was also because banks demand a rating before doing any sort of lending. However the rating received is BBB- which is just below investment grade I think, so banks would still be wary. A year since the rating was done but there are still no major term loans I think. Growth is happening with profits of the company being ploughed back into the business, plus whatever money the promoters can pump into the company. Once they start getting term loans from banks (and typically banks lend in packs, comfortable in the knowledge that another bank has also vetted the company) that is when this company can show break out performance.

  2. Someone once told me there will always be people willing to take money from you - in other words, there is never shortage of demand in the lending business. Only question is how much risk the lender is willing to take. However narrowly you define your customer, in an under-banked and under-credit country like India, there is never shortage of borrowers. Plus, given the size of this company, I am not worried on the demand side for this company, for the next 10 years atleast.

  3. For valuation of lending businesses, a better norm is P/B rather than P/E. This company is at 1.5 times book value. Compare this with HDFC Bank (4.18, most loved Finance company by investors), ICICI Bank (2), SBI (1.18, PSU Bank issues), Shriram Transport (1.96), PFC & REC (0.95). Discounting for size, low leverage, geographic spread and customer profile, in my opinion this company is fairly valued.

  4. I could not find the number of employees anywhere in the AR - does anyone have that information? This can help understand manpower efficiency levels.

  5. There is another company called Shalibhadra Infosec on BSE (trading suspended) - is there any relation between these two? The promoters of this other company have been penalised by SEBI for some wrongdoing.

(ManavBansal) #47

Hi Ramesh, great to know you have some working knowledge of a lending institution, makes for an interesting discussion :blush:

I will try to answer your questions, but be prepared for long answers :smile:

  1. I went through data to indicate is there is correlation between a NBFC’s loan portfolio size and the number of banking relationships it has, well, there is negligible correlation, there is a stronger correlation between the areas in which it operates (Metro, Urban, Semi-Rural, Rural)

To get this answered, I talked to one of the larger 2 wheeler financing companies in Delhi, the feedback I received was as follows -
a) They have 11 banking relationships, banks approached them in almost all cases, something about how monitoring loans and keeping a check on numbers and discussions is much easier for the banks as this particular company is operating locally in Delhi
b) I asked him that if your main office was in Delhi and you had 20 branches in rural areas of Haryana, would the attitude of the banks be the same, the owner told me this would make due diligence for the banks tougher, they would not be interested, infact the company would have to approach the banks for loans

Like you rightly mentioned, the company can show breakout performance once they start getting term loans, I think management is cognizant of the need for this, hence the effort to get a rating done for the first time in it’s history, there are not many NBFCs with 50 crore loan portfolios which would approach rating agencies and get themselves evaluated unless they thought -
a) The rating is going to help them to grow much more
b) Their aspirations were much higher than current performance depicts
c) They are not happy with their current financing arrangements

If you read past ARs, you will see management talking about how Banks are not happy lending to NBFCs and how they are trying to tackle this problem by getting a ratings done, this shows a longer term orientation since they are not hiding their weakness but telling us as shareholders that we are facing this problem and this is how we are trying to tackle this

You will see a pattern in the ARs, they repeatedly talk about deep business problems which other companies would not share and then share about how they are trying to solve them, and then they go ahead and do those things

I think that since the loan book has grown by 20% in 2015, we can wait for the 2015 AR to decipher what means of financing were used to grow this fast since now they base was much higher than in the past

Well Capitalized Balance Sheet - We can call a balance sheet well capitalised if the company had been leveraged 2-3 times and then the promoter pumps in equity to bring down the D/E, thereby enabling growth - Your point becomes valid once the stream of term loans start

The linking up of branches with Databases, Digitizing Records, Ratings are all leading indicators to this company preparing itself for the future, and the future includes getting better capitalized with the right financing structure, the current structure is very conservative or maybe too conservative, but hey, I am not complaining, the fact that the promoters have pumped in their own funds to support business growth makes me very happy and relaxed, if their business policies were shady or their operations were not upto the mark, I do not think the promoters would do what they have done

I come back to the same point I made earlier, with so many handicaps the growth rate has been above 20-25%, I mean, if you told me all these handicaps and then asked me how much do you think an NBFC would grow, you can be rest assured the answer would be much lower than these guys historical growth rate

The rating being BBB- has a lot to do with scale, otherwise if you reread the rating report, ICRA talks about their strengths and actually does not come out with anything negative, I have not read such a small company getting so many compliments from a ratings agency

Let us the number of positive things said -
a) long track record of operations
b) sound local knowledge of the management
c) a strong dealer network built in over past 15 years of operations
d) ability to maintain robust profitability indicators
e) consistent dividend history
f) comfortable capitsalition levels
g) high yields and controlled operating costs
h) strong Return on Equity
i) company has developed strong tie-ups with local dealers/sub-dealers for business sourcing
j) tie-ups with the scheduled district cooperative banks for collections at all locations where they operate, which improves the operating efficiency as well as reduces the risk of cash handling at the branch.
k) follows prudent credit policies
l) company insists on house ownership in case of all loans
m) given the sound credit policies, the company was able to keep asset quality indicators under control
n) experienced recoveries from harder delinquency buckets as well.
o) supported by higher yields earned while operating in relatively riskier, middle and low income segment and controlled operating expenses owing to centralised management and sourcing at dealer locations, and reasonable credit costs
p) derives comfort from a high capital support extended by the promoters in the form of debt as well as equity

Not to make this too one sided, let us note the negative things -
a) modest scale of operations
b) geographically concentrated operations
c) stress noted in the asset quality indicators during FY2014, albeit with some moderation

Now to discuss each point one by one -
a) They are growing, with the effort and changes made, they should not have a modest scale in sometime, it is not as if the company has an aversion to growth
b) Geographical Concentration is a necessity if they want to be sensible, this business requires Focus and deep territory knowledge, if they were spread over 5 states with the same business size, I would be worried, I consider this a big positive, they have enough headroom for growth in these 2 states, they have a long successful history of operating here and to add further perspective, Gujarat grows cotton and Maharashtra grows sugarcane, these two commodities have been in the dumps for a very long time now, but this company has grown by making these - 12-24 Month loans, with house ownership, with Low LTV% - the only reason they can do this is because - deep focus + territorial knowledge

When I read the ratings report I thought ICRA was saying I Love you to Shalibhadra, but I think ICRA wants to marry after Shalibhadra maybe grows a little more mature, and Shalibhadra is on the way already !!! Yay, happy union awaited !

(ManavBansal) #48
  1. Agree that they have enough head room for growth, demand will not be a problem

  2. I disagree there, the nature of the asset does not matter, the only thing which matters is it’s sustainable earnings power. It is paradoxical that the less assets a business uses to generate earnings the more precious it becomes. The reason for the difference in PB of HDFC and ICICI bank is management quality and risk policies

If you pay attention to the product offering of the company, they make such good business sense for the company and sense for the customer because this company has found a Niche and through deep practice and focus over the years has become better at what it does.

If you were a private buyer and this company was offered to you to take private and have this management run it, I think you would worry about sustainable earnings power, aka how much money you would be putting in your pocket, not how expensive book value was

That said, I am interested in making sure what is in the book is solid, but beyond that I want money I can take home and use

If this company had not been paying dividends for 10 years the book value would have been higher by 8.5 rupees, so instead of 39, it would have been 47.5, then this would be cheaper according to you, but would it make sense for shareholders I doubt it

There is no single barometer of valuation applicable to a whole class of companies, people used PB for PSU Banks for a long time, but then everybody stopped using it but not before suffering quite a bit

  1. Somebody can ask the company, I talked to the finance manager for 45 minutes, and understood 30 minutes of it, he kept using barobar and if I had continued he would have made me take a bike loan, so I do not want to talk to him again in a hurry, will do so in sometime

You can indirectly estimate efficiency levels

The parts in yellow is what I have estimated, the exact figures will be known from the 2015 AR

What we can see is an increasing loan portfolio per branch and a fairly consistent loan ticket size, this should tell us a lot about efficiency !

  1. The promoters of infosec are most probably cousins of the promoters of Shalibhadra Finance since they have the same surname and the start company first name, but they do not have any business dealings that I know of


Well i haven’t read the full thread but i doubt whether this can face same issue as MCS is facing from last 2 years ??

(ManavBansal) #50

Please read the entire thread before commenting, that shows respect for the effort put in by other forum members, that is a good habit to cultivate

Who is MCS, would love to know more if you can elaborate


muthoot capital services

(ManavBansal) #52

would love to know more if you can elaborate?

If you can share details it would be great because otherwise giving one name and saying hey, can this happen does not make for an interesting discussion especially since I am lacking in details about MCS :blush: :blush:


Manav i think focusing on one company is good and it will be great if you can go through the peers company and issue faced by them. Concall’s are available in and you can also look into the discussion Thread available on MCS in .

Hope this helps !!

(ManavBansal) #54

No it does not, you are telling me to do extra work which can run into a few hours instead of writing a paragraph which would make every reader’s life easier

How does this help?

I thought the entire point about having an interactive forum was for like minded people to come together and use collective intelligence to work through ideas

What you are doing is similar to me taking a few hours out, writing a message which is 500 words long to get a doubt clarified and you telling me to go and read 50000 words and then get back to you !

We all might be amateur investors but if we work together we can beat professionals, that happens when “together” becomes the operative word

I would request you again to write one paragraph and save everybody and especially me a lot of trouble

Everybody on this thread has added value to the discussion, they have used their knowledge, industry experience and even readings of AR to do so, I think this is a very powerful pattern and we should continue in this spirit !

You have not even read this entire thread entirely and you are telling me to go read another company’s thread entirely apart from going through multiple concalls, buddy, you must be kidding !

(bibhu ashish panda) #55

Manav hats off to your effort and the details you have put here. Encourages all of newbies to go that extra mile. Thanks.

(ManavBansal) #56

Thanks :relaxed:

Much Appreciated


bhai i have just shared my thoughts. it’s your view anyway it’s your money.

(ManavBansal) #58

Well thanks for being honest :relaxed: :thumbsup:

Would have still preferred the paragraph, but I think it is Independence Day

Happy Independence Day Everybody :pray:

(mukul aggarwal) #59


Thanks very much for bringing this co. to our notice.

I am very bullish on rural growth and lending is obviously an essential part of it. Just ran through the ARs and have few questions which I request you to please clarify:

  1. NPAs: I am unable to find NPAs in the annual report, though saw it in the CRISIL report. Are NBFCs not mandated to disclose this info in the AR? Neither they have any info on employees? They have just mentioned this:

  1. They have mentioned that they have entered into the white goods segment, citing more opportunities and growth avenues. Does this mean they are facing stagnancy in the two-wheelers space? I am naive about the white good lending, but the resale value should be very less as % of initial value vs. two-wheelers? Will it increase the NPAs? Also any info on what kind of white goods they support (TV, Washing Machine etc.)?

  2. Future Outlook: Noticed one interesting thing about their outlook in the ARs. Looks like they have just deferred the target of loan book of 100cr from March 2016 (AR 13) to March 2017 (AR 14). Looks like they are not able to meet their internal targets. Below are the two snapshots:

Lastly just out of curiosity (nothing else), you have mentioned a banker friend in your previous posts. How he/she knows about the co.? Do they provide the loans to the co.?


(ManavBansal) #60

Hi Mukul

Will try to answer

1. This is from the 2014 AR about provisioning -
Loan stock of vehicles is valued at cost less installment accrued and due.
In the opinion of the management, 2/3* of the loan stock is classified as current & /3li is classified as non current. (ID PRUDENTIAL NORMS
In terms of guidelines issued by Reserve Bank of India lo Non Banking Financial Companies on prudential norms for income recognition, assets classification, provisioning for Bad Debts etc., the following additional information is given:
No new provisions for non-performing assets are required in current year.
(Ill) Exceptional item represents Contingent Provision against standard Assets at 0.25% of standard assets made as per RBI Circular No. DNBS. PD. CC No. 2077O3.02.002/2OIO-11 dated 17 January ,2011
(IV) The company has not prepared bank reconciliation statement for a few bank accounts for the period under review. The company is finding it very difficult to reconcile for a few bank accounts in lime due to similar installment cheques, non-computerization by bank etc. However, the company lias taken suitable remedial measures and bank reconciliation statements for the balance accounts will be completed shortly.
(V) In the opinion of the Board of Directors the current assets, loans and advances have a value of realization m the ordinary course of business at least equal to the amount of which these are staled in the Balance Sheet

I would look at the history of Provisions and writeoffs -
Provisions and Contingencies (0.76) (0.72) (0.45) (0.29) (0.29) (0.11) (0.15)
The figures are from right to left from the year 2008 to the year 2014
Writeoffs - (0.57) (0.49) (0.39) (0.24) (0.24) (0.07) (0.11)
The figures are from right to left from the year 2008 to the year 2014

The pattern here is that their writeoffs are much more than the provisioning that they are doing, it is not as if they do not make mistakes, but they writeoff bad loans consistently, the ICRA report mentioned them having Gross NPAs at 1.98% in 2014 versus 1.1% in 2013 which is expected to come down in 2015

They share the provisioning information and writeoffs in the annual PnL
About number of employees, I do not think they are required to share it, I do not remember noticing every company sharing number of employees, so maybe that is a common issue

  1. White Goods as of June 2014 is just 1% of their loan portfolio, as far as I am concerned if they lend more money in this segment using the same principles that they have followed so far - Low LTV + Short Term + High Yield + Own House - I would be ok with it

I get the sense that they are increasing the scope of their older branches, in a way increasing the yield, I am under the impression that the white good segment would have even better economics for the company

In real life I am aware of white goods dealers offering items on 6 monthly to 1 year credit to customers in rural and semi rural areas - the profile of the loans is very similar to the ones that shalibhadra makes, and yes house ownership is seen as a good collateral :), the few dealers I know who do this well, are actually very profitable and have been for a long time

How do I know this, one of our businesses supplies goods on credit to these dealers ( :smile: interesting how everything seems to be connected)

Let me share some more information -
In the past they got into old 3 wheeler financing, but they stopped it saying, market is not good plus too much money is at risk on a single transaction, yield is lower
In the past they have said we want more old 2 wheeler financing because yields are better
I think they have understood the fact that acting prudently while dealing with smaller ticket size loans is very good, this is learnt behavior, they made mistakes to learn it, but this enables them to focus on yield, white goods fit this pattern quite well, honestly I would want this segment to grow faster

  1. Till a few years back they were very accurate about this number shared in ARs and their ability to hit it, then out of the blue, came the 100 crore number, I kept thinking why would they do this, they make accurate predictions and then all of a sudden they put a number out there which from experience I know they will not hit by the date they say they will unless they lower their lending standards and act foolish

If you read the ICRA report you will see Management is aiming for a 60 crore loan book in 2016, up from around 50 crores in 2015

Then why are they sharing this 100 crore number in the AR when their own internal projections are different

Then it hit me, the 100 crore number and the number of customers is the ASPIRATION, they want to reach there, the fact that they were putting it in public was they will sharing their Goal with shareholders, when they will hit it, I dont know but looking at the work done as homework and the cumulative knowledge and experience and skill sets they have built up over the last 10 years about the business, I think it will happen sooner than their own history dictates

Infact if you look at the current loan portfolio per branch, I do not think they even need 50 branches to reach a 100 crore portfolio, but like I said they aspire for it, as long as they are not losing their lending standards, I would want them to aspire higher and dream of a 200 crore portfolio :grinning:

They went through a lot of trouble with getting systems and processes for this aspiration, I am in business, I can tell you aspirations are the fuel for ambition and hard work, I have a different world view compared to an investor, because I see this aspiration thing play out in front of me over and over again in real life, business is not only about numbers you know, it is about how emotions, wishes, wants and needs translate into numbers, I am quite a hopeless romantic about business and investing, so kindly read what I am saying wearing big boy glasses !

The Banker friend is a friend of a business associate, who interacts with this company in Mumbai once in a while, but I take everything he says with a pinch of salt because I think he loves them

(mukul aggarwal) #61

Thanks very much Manav for patiently answering the queries. Really-2 helpful.

Few more questions (sorry for asking again but as you have done so much work on this so want to know the expert thoughts:

  1. What is driving their high net interest margins (in the range of 15-16%)? Are these sustainable even if some other local player come into the market? These look like pretty high vs. industry average?

  2. Can they expand to other geographical markets w/o compromising the margins? Or they don’t have any intention to expand to other geographical location?

Apologies for sounding naive in the questions.