Shalibhadra Finance - microcap NBFC, growing steadily

(ManavBansal) #62

Well, so much work is debatable, I have filled in a lot of blanks using experience

Like one of my coaches said – better to be appx right than to be precisely wrong

  1. They define ideal customer with a certain kind of loan type with a certain type of collateral plus their competition is money lenders, they are after customer with a higher income and collateral profile compared to a typical microfinance candidate. Everybody ends up with certain niches and learned experience over long periods of time, these guys have this - Fast moving lending practices niche

Combination (Low Ticket Size + Higher Interest + Own House + Low LTV% + 12-24 month duration + Competition is not other NBFCs, it is primarily moneylenders)

The above combination almost is a recipe for higher interest margins

Local player entering the market = These guys have grown and have maintained these NIMs consistently, they have a secret sauce which can only come from Deep Focus and Territorial Understanding which is not easy to replicate for a larger entity

Will there be other competitors, I am sure there will be, but my sense after looking at their history is that these guys are just better operators and they are making sure they are not competing against other sophisticated players

  1. They have an edge in the markets they operate in, I would want them to continue in these states because they seem to have enough headroom to grow, I do not know about their intentions but I am sure they are interested in growing, with this kind of a management I would rather let them take a call, they have done well without our suggestions :smile:

(alok) #63

So far a very good insight into the company analysing their ARs and also from your source who knows the company.

Manav, don’t you think we should use scuttlebutt now to get some more information. This could mean contacting their branches , 2 wheeler dealers.
Branches are of course in remote locations and hence difficult to access.
Also have you thought of attending their AGM in future or interact with their management.

(ManavBansal) #64


That is the plan, somehow with these things, research never stops, even though I think we have built up quite a knowledge vault in this thread

If anybody is located close to their office in Mumbai, maybe they could help out

Just for the record, the contact did not provide me with a lot of inputs, he seems to think very highly of the management, the key takeaway was that these guys are honest

The management does not need the dividends, they are cash rich plus they have used their personal funds to finance the business but they have shared the profits with minority shareholders in the form of dividends for 10 years straight now tells me the same thing, that these guys are honest

I would put more weight on the second finding because it is more reliable !

(mukul aggarwal) #65

Got it. Thanks very much. A couple more and i will be done :smile:

  1. Slow down in growth in FY14. EPS grew by 5%. In my understanding they suffered because of the software implementation issue and not able to borrow funds to open the new branches because of lack of credit rating. Is this understanding true?

  2. No. of branches in 2015. Have they increased the branches in 2015 given the above mentioned issues are resolved. Also any news on borrowings from financial institutions i.e. whether they have started to get benefit from the credit ratings?


(ManavBansal) #66
  1. Most probably yes, but it is a good habit to look at longer periods, one year inference is not very reliable
  2. Wait for AR 2015 for exact numbers, though credit ratings normally do lead to easier borrowings and lower rate of interest

In AR 2014, fr the first time, their AR was in color and they shared a lot of relevant operational information with shareholders for the first time like number of live contracts, a 5 year snapshot of important metrics, diagrams of operational metrics and pictures of the kind of customers they service

I hope they continue this trend, these guys are so low key they do not even announce new branches on BSE, they use their AR for communicating with shareholders

(Smiran Bhandari) #67

First of all, Manav I must congratulate you for a very detailed analysis of Shalibhadra. Deep understanding of business and meaningful insights is something I really appreciate in this forum.

I am keenly awaiting the 2015 AR. Would like to know when you are expecting the report.

Also, a lot of large NBFC players are teaming up with two-wheeler manufacturers to provide the loans. Manufacturers like Bajaj and TVS themselves have a finance lending arm. Will this trend affect the performance of smaller NBFC’s like Shalibhadra in the long run.

Disc: Invested

(ManavBansal) #68

Also, a lot of large NBFC players are teaming up with two-wheeler manufacturers to provide the loans. Manufacturers like Bajaj and TVS themselves have a finance lending arm. Will this trend affect the performance of smaller NBFC’s like Shalibhadra in the long run

This trend will depend more on region - Metro, City, Town, Village

What happens when we go to the rural and semi rural areas is that the dealers have much more clout, because they are seen as the face of the 2 wheeler companies and purchasing by customers is these areas is done more based on trust in the dealers

In a large city, spares will not be a problem if this dealer does not have this, you can always get it in the after market, but in rural and semi rural and semi urban areas, things which you would take for granted like service quality, spare parts and honoring insurance claims are seen as deal breakers

One trend which I have noticed in Metros versus a Village is that in a Metro the customer more of less convinces himself, he has access to facts and figures and multiple dealers to go to, but in a village or small town, the customer needs to be convinced, sold to, and he depends much more on the past performance of the dealers based on feedback from people he knows and trusts

In this scheme of things, in rural, semi rural and small town areas, NBFCs team up with dealers directly and even the 2 wheeler manufacturers are not interested in getting involved out of fear of pissing off dealers as they would end up eating his margins

Long story short - 2 Wheeler manufacturers would not take actions which would eat into the margins and earnings power of dealers in rural and semi rural areas

I had mentioned earlier, the large scale trends, like the one you mentioned take a long time to come about, and in rural and semi rural areas where the power equations between the manufacturers and dealers are reversed it would take much longer, I am thinking decade not year

Don’t know the exact time of the AR, but it should be soon

Hope this helps

I would request other readers and forum members to also add value, that would make this a much more complete discussion thread

(manish) #69

Manav , great work.
you have already covered most of the stuff, only thing remains is scuttlebutt

Regarding financing white goods -i think the company’s foray into financing of white goods is a good step PROVIDED they are conservative and have prudent risk mgmt towards the segment.
Looking at the past record they seem to be alright.
it is unlikely that white goods would contribute meaningfully for next 2-3 years. Nevertheless, i think its better that company has presence in another segment.
The loan size in white goods is very small and it is not possible / very difficult for banks to compete.
Even in cities the competition in this segment is presently limited with Bajaj finance dominating the space.

In case if one segment is underperforming the company has the option to lend funds to the other segment. This should provide some cushion going forward. Again on the belief that the company will follow prudent lending practices.

For example - Arman Financial - they were initially into auto finance but ventured into Micro-finance as well and have been able to grow well even though the auto segment was a bit sluggish.

For 2 wheelers segment, most of the company including established players like STFC and mahindra and Mahindra have not been performing well recently. So that way Shalibhadra has performed well by growing in this tough time also. But i am sure there must be competition. No dealer or company would open a showroom without having the facility to provide finance to its customers.

Disc- invested a very small qty as the stock moved up and couldn’t buy more.

(ManavBansal) #70

Notes from Arman Financial Concall

The company has network of 50 dealers and four branches in the two-wheelers lending business. The company is looking at further expansion in the 2-wheeler finance business with new branch openings in Madhya Pradesh. The company has already hired the team and the branch should be operational in this quarter.Two wheelers disbursement increased 10% to Rs 12.29 crore in Q1FY2016.The company has targeted the disbursements of Rs 65 crore and also AUM at Rs 65 crore for FY2016.
NPAs in the 2-wheeler business have increased moderately in this quarter. The 3-Wheeler portfolio is witnessing some pressures, while the company has been gradually withdrawing from the 3-Wheeler market, due to lack of financial viability for 3-Wheeler operators

You can understand a lot about the business of Shalibhadra by understanding Arman’s business model

Arman is getting out of 3 wheelers now, Shalibhadra got out of 3 wheelers 2-3 years back, they recognized the problems quicky and took action

Arman has 4 branches and Shalibhadra has 18, they both do the same amount of business, what does that tell you about spreading out risk in the loan portfolio and working harder to make more prudent and higher yield loans

I think Shalibhadra management are better operators and very good at not competing against sophisticated competitors, when you have this kind of management and employee force with the same kind of financing arrangements and financial sophistication, which I think they have worked on now and it is poised to bear fruit, what do you think the outcome should be in terms of a result for shareholders :grinning:

(mukul aggarwal) #71

Thanks Manav for actively replying to the queries.

As there are no concall transcripts or investor presentations available so AR is the only source of information we have. FY15 AR should provide a lot of color on their strategy and actions that they have taken last year.

The reason I asked the question on FY14 lackluster performance was because the stock seems to be pretty volatile and a temporary slowdown in growth can really move the stock to very low levels.

Disc: Invested

(ManavBansal) #72

If there were concalls and investor presentations, there would be no PE of 8, the PE would probably be much higher, so I am ok with having lesser information as long as that applies to others too

I think most of the data points we need to make a decision about this company are already contained in the thread, rereading it won’t be a bad idea

Yes, the stock is volatile and a temporary slowdown in growth will affect it, I think I will survive it

Every stock is volatile and every stock gets affected by a temporary slowdown in growth

The best way to protect yourself against such volatility is to own Debt and not equity, equity is much more volatile than debt

What are you exactly getting at ? Is there another question implied by what you wrote ?

(mukul aggarwal) #73

Hey Manav,

I am not implying anything…it was just an observational post from me… As I am just 3 months old in investing so i am building on a lot of learnings and observations on the market behaviour, investing process etc.

So please dont consider i m counter attacking your or anyone else views here… My intention is never to implicate or ask unnecessary quesions on one’s investment rationale or reasons. I am just here to learn and collaborate on understanding the business better… If i have a question i will directly put across w/o any hidden meanings…

Hope it clarifies and thanks again.


(ManavBansal) #74

Chill Buddy

I actually thought there was a question in your point, if somebody asks me the stock is volatile and a slowdown in growth is bad, I would say the same thing everytime - every stock is volatile and slowdown in growth is bad, then I would ask you what the point is of the statement ! :smiley:

At a cheap enough multiple, slowdown in growth hurts much less compared to a high multiple

(Gurjot) #75


Read through the entire thread again yesterday. Must compliment you on the way you’ve patiently answered each question with a lot of pertinent details about the company, business model, industry, etc.

So - I’m almost convinced about the management and it’s execution capability given it’s excellent track record and risk management capabilities.

Looking at some valuation metrics - apart from RoA - it looks like a good bet on all other parameters (RoE, Revenue growth, NIM, P/B, PEG, P/E, excellent div yield).

But the RoA is currently around .95% which is poor when compared to other NBFCs (Gruh has a RoA of 2.2% - not a same industry comparison but then the valuations are accorded based on average/excellent numbers I think. And since it’s mortgages are always depreciating assets - RoA should be even better than average HFCs whose mortgages appreciate and are less risky). And I believe it has do with their high CAR and this has been documented in the thread about the company intending to grow faster.

Based on that - only if they start increasing the loan book growth aggressively (min 25% yoy for 3-4 years) should we expect a re-rating IMHO.

Disc - Invested (deliberating on increasing size of bet)

(JatinK) #76

Strangely, FY15 AR has neither reached my mailbox nor is on BSE; AGM was supposed to be in Sept end.

Also dividend hasn’t been credited.

Anyone got the AR or the dividend?

Disclosure- Minor Holding; looking to study more

(sri krishna bhutra) #77

Today’s delivery %age looks awkwardly low.

(Gurjot) #78

I believe dividend has to be credited within 30 days of AGM or interest is charged.

Let’s hope it gets credited within the next few days :smiley:

(aojha) #79

Great work manas. i am sold on the idea almost. growth is almost never an issue for such small businesses, if the management tries. and software change and rating, show that something has changed (quite important in my view). i guess PB etc is also not so important, as you rightly mentioned that branches are still operating at sub standard levels. divd is the strongest indicator of management intent… dont know what else to ask, may be one round of visiting the branch and trying to get a loan which will further prove a few things you have written… i am in mumbai, somebody from gujarat may be?

(Harsha Rama Rao) #80

Can anybody share when the Q2 results are out ??

(Gurjot) #81

Tomorrow as per the MD (spoke with him today)