@Worldlywiseinvestors Priced to perfection.
3 Likes
Don’t look at screener PB, it doesn’t include Fund raise capital
Networth is at 417 crores, P/B of Both CAGL and Arman is the same. With latter growing at faster rates.
With that being said- stock has done remarkably well in last 2 years, and probably is the best performing MFI.
One needs to have own exit strategy and thought process in place. Valuation multiples will interact with the growth rates in a deeply cyclical sector.
Disc: invested. No transactions in last 30 days. No reco to buy or sell.
8 Likes
Arman Finance Concall Q4-FY23:
-
New guidelines have played an important role in the growth of the MFI sector, the AUM grew by 58% in Q4 to 1943cr. Company demonstrated robust growth in all segments, disbursement grew by 73% to 1767cr which is supported from Bihar. Bihar is doing exceptionally well in our new geographies. During the year 44 new branches opened, and now the company has a presence in 8 states.
-
In the long run, the company’s target is to reduce operating expenses with the help of technology, automated underwriting and advanced data analytics. Implemented a paperless journey from onboarding to collection with the help of tech.
-
Company recorded the highest ever profits due to improvement in NIM, optimising operating costs and improvement in credit costs.
-
We will be opening 50 to 70 branches during FY24. We typically break even at 600 to 800 customers which usually happens in 4 to 6 months.
-
Direct assignment income is included in our yields as we have to recognise profits as per Ind AS, as we grow we will be doing DA transactions regularly, it is mostly done in Q4 so major impact will be seen in Q3 & Q4 and lower assignment income in H1.
-
The general yield on MFI is 24 to 27%; there will be some marginal increase in yields during the year as currently there is no plan to increase the interest rate yields.
-
Currently all loans disbursed and collected are cashless.
-
Maharashtra has been the worst impacted states during covid, even in today’s scenario the stress is highest in Maharashtra but our asset quality has been improving quarter on quarter. We are currently not seeing pre covid levels of credit cost as it is not going to come back, days of 1% loss assets are behind us, now things have changed and it will be 2 to 2.5% in the long run. Current credit cost is around 3%.
-
On loan growth our CAGR is 35 to 40% during the last one decade, so we are expecting it to continue at the same pace in near future. Not giving guidance for the year
-
Over a period of time Bihar’s share in total AUM will be improving; it is currently at 6 to 7% of total AUM; we are opening branches in Bihar as well. This year it will be at 12 to 13% AUM share from Bihar. Haryana is a slow growing state.
-
Most of our tech infra is on SaaS model, so there will not be much capex into it. There will be some marginal increase in the ticket size of around 7 to 10%.
-
We have sufficient capital to reach to 2500cr AUM without any assignment and fund raise. At around 2500cr AUM we will raise equity.
9 Likes
Hi guys, I have a question for folks who’ve been tracking the microfinance sector for years. Flood has previously caused havoc in the microfinance industry. Are you tracking any leading indicators related to gauge the impact of flood. I’m looking at the flood forecast issued by the govt. Wanted to know if the domain experts are tracking some other indicators.
Thanks in advance!
Usually what has been seen is that floods have had limited impact on both the livelihoods of borrowers and the lenders. Unless there is complete devastation business is impacted for a week or two and they move on.
Assam was a unique case where many problems converged to break the repayment discipline.
What we as investors can do is only go for lenders which are geographically diversified. So that it would take state-level, and country-level floods, and natural disasters to affect the lending portfolio in a big way. We can track weather forecasts of upcoming cyclones, but they are highly unreliable and estimating damage is very difficult.
CAGL has really good disclosures on district-level concentration but they are also concentrated in few states. Arman is too concentrated, same for Bandhan. Haven’t checked latest diversification of Spandana, Suryoday, Satin etc.
Risks have a way of hiding in valuations until they materialize. Both COVID, and DEMON showed that. An isolated natural disaster will show the benefits of geographical diversification to the market. As it ignores geographic concentration for now in the high valuations of Arman and CAGL. Hope such a disaster never happens though.
8 Likes
Microfinance customers are basically low strata people and since 1 year they would have faced inflation , which should lead to delay in payments by them but every company is posting good result.
Can someone elaborate and share insights on it
I am not good at english writing so sorry for grammatical mistakes.
It’s based on my 10 yrs experience with Arman .
No doubt they have shown tremendous growth in AUM, they grow at crazy level.
But if u go at customer level they r playing completely different game. Which is not in MFI rulebook. They are telling customer that if u complete 30k loan, u will get 60k then 90k and so on.
So customer pays with greed of getting more money. But when they will realise that it’s a trap , there loop will be break.
If u see at very micro level it’s purely juggling. U r charging 24% interest, 2% FPC ,RS.300 credit check charge. And deduction of 1St installment in advance.
Does this kind of loot will survive.
And such high valuations for what such malicious practice?
If u talk to CAG or Chola employees they r the most Ethical people they r also wondering with Armans such practices.
And because of their cash collection model many employees literally looting customers in the name of late fees and all.
And that’s why Arman employees are ready to work at very low basic salary. Because they r getting big chunk directly.
Disc. Not invested.
1 Like
@Kuldeepjadeja Is there any proof of your claim regarding the lending practice of Arman as the promoters seem to be ethical people otherwise with long standing reputation in the industry.
2 Likes
Question itself is tricky… whenever u feel this is inappropriate don’t consider it.
I have contact number of some of the customers and employees also. But I think it’s unfair to share here.
If still anyone wants it send me DM.
I also had conversation with Mr.alok and Mr.Modi but after that they stop receiving calls.
Disc. Holded shares between 2015 to 2022. Now no holding.
3 Likes
Arman finance Q1 FY24 Earning updates
Another strong quarter from Arman
- AUM +54% YoY to 2143 Cr, disbursement of 537 Cr in Q1 (+42% YoY).
- 40 Cr PAT after 13Cr Provision and write off.
- GNPA of 2.5% and NNPA of 0.1%
- ROAA of 7.8% and RoE is 36.5%.
- Share holder equity is 406 Cr, including CCD & OCRP at 457 Cr.
Arman initiated expansion to Jharkhand and Telangana. Jharkhand on Microfinance and Telangana on MSME.
Currently operational in 10 states with network of 343 branches.
Regarding newly entered markets, Bihar has done exceptionally well. Now biggest Microfinance market in India outpacing Tamilnadu, Asset quality very good as well. Company closely monitoring the situation, won’t accelerate growth in Bihar for now (market has grown too fast and Bit of a too good to be true situation right now). Long term future for Bihar looks bright.
Haryana is good in terms of asset quality, but growth is slow. Telangana and Jharkhand is too early to comment.
Disclosure: Invested
4 Likes
Has anyone attended the in person investor meet? If yes it’d be great if someone can share the excerpts here.
It’s a classic example of Financial Jugglery nothing more than that…
Pick up any small bank PSU or pvt their profits are at sky high , why because it’s sweetest and longest credit cycle ever (Words of Uday kotak).
Same thing with Arman , they have JLG model, they lend in chain 1St 30k then 60k then 90k and so on. It’s a endless process , if someone has courage then it’s will never stops.
But if music stops , any black swan event happened they will lost 40%+ of their AUM.
So don’t see what they r showing,try to see what they r not showing.
Disc. SOLD And Shifted to credit access and MAS.
1 Like
What makes you think that in a black swan event Arman will lose 40% of AUM and Credit Access will not. Both are in MFI space and credit quality control for both of the companies are stringent and this is something that we have already seen in last black swan event i.e. Covid. MFI is a cyclical play and it is better to exit when there is a black swan event whether it is Arman or Credit Access. Arman is still small compared to Credit Access, hence for me Arman is a better investment as it can grow faster.
Disc: I invested in both Credit Access and Arman around 800 when the credit cycle started looking benign after Covid. Another trigger was change in MFI regulation. Later I realised that it is better to play MFI cycle through Arman due to higher growth. Hence , exited Credit Access with some gain and consolidated my holdings in Arman.
4 Likes
Arman Financial Services Q1 concall updates -
Historical performance -
2016-2023 growth CAGR -
AUM - 41 pc
PAT - 42 pc
Present RoE- 36.5 !!
RoA - 7.8 !!
Positive ALM
Present in -
10 states
343 branches
139 districts
Current customers - 6.8 lakh
Present breakup of loan book -
Microfinance - 82 pc
MSME loans - 13 pc
2-wheeler loans - 3 pc
Individual business loans - 2 pc
AUM’s geographical breakup -
Gujarat - 28 pc
UP - 24 pc
MP - 15 pc
Rajasthan - 12 pc
Maharashtra - 11 pc
Others - 10 pc
Microfinance in Q1 -
AUM - 1800 cr
Yield - 24.4 pc
NIM - 12.0 pc
RoA- 7.6
GNPA - 2.4 pc
NNPA - 0.03 pc
RoE - 38 pc
Avg ticket size - 45 k
MSME loans in Q1 -
AUM - 276 cr
Yield - 36.1 pc
GNPA - 2.4 pc
NNPA - 0.4 pc
Avg ticket size - 75k
2W loans in Q1 -
AUM - 66 cr
Yield - 28.4 pc
GNPAs -4.5 pc
NNPAs- 1.3 pc
Avg ticket size - 67k
Q1 financial outcomes -
AUM - 2143 cr ( up 54 pc )
PAT - 40 cr ( up 154 pc )
GNPAs - 2.5 pc down 115 bps yoy
NNPAs - 0.14 pc down 20 bps yoy
Avg loan tenure in micro finance is 2 yrs
Company intends to go deeper in the current geographies it is present in. Also evaluating opportunities to enter new states. Company does a lot of brain storming/data analytics before entering a new state
Company has over last 1-2 yrs entered - Bihar, Jharkhand, Haryana, Telangana
Bihar performing really well both wrt growth and asset quality
Haryana - results are mixed wrt growth, Asset quality has been stable
Jharkhand, Telangana have been the more recent ones
Aim to keep growing AUM at 35 pc CAGR for next 3-4 yrs
ESOP programs of the company are avlb to all employees - right from field level to senior management !!!
It varies from 40 shares to 1000 shares. Avg is about 300 shares
Current provisions held @ 3.5 pc of the book
Avg cost of borrowing for the company is around 12.5 pc
Disc: holding a tracking position. Intend to build on if the business keeps performing
6 Likes
Thank you Kuldeep ji for sharing your views.
All MFI have their own models of carrying out the business and it appears it is currently working in favor of Arman.
With due respect to what you have shared in earlier and last post, I feel your view is biased and I will take it as anti-thesis when it start reflecting in the results/concalls.
3 Likes
Valuation now is ~5.5 P/B. Probably market is discounting the fact that the Arman will continue with 30%+ RoE, which clearly is unsustainable.
Most of the profit growths over the last 2 years have come from MFI upcycle and hike in interest rates due to new regulations. One thing that comforts me, is the management has been very transparent about this current growth. They have c
Arman Financial Services Ltd
Microfinance outlook India:
-
microfinance industry reported a healthy 24% CAGR over FY18-23. Rs. 3 Trillion Disbursal in FY23.
-
$500 Billion is the untapped loan business.
Management:
MR. JAYENDRA B. PATEL - MANAGING DIRECTOR & VICE CHAIRMAN
MR. ALOK J PATEL - JOINT MANAGING DIRECTOR -
MR. VIVEK MODI - GROUP CHIEF FINANCIAL OFFICER
Company Profile: -
CMP Rs. 2311 per share, EPS 139 (TTM), dtd 18th Oct 2023, PE of 16.66, Industry PE Avg of 19.16 (Range 36 of Bajaj Finance to Shriram Finance 11 PE)
-
Target is 153 EPS (Annual), and Target Price band of Rs. 2550 to Rs. 4600* per share if PE rerating happens.
-
FY09 AFSL started its journey from 1 Branch in Ahmedabad Gujrat.
-
FY15 Gujrat and Madhya-Pradesh, FY16 Maharashtra, FY17 UP, FY18 Uttarakhand, FY19 Rajasthan, FY22 Haryana, FY23 Bihar.
-
55 Branches in FY16 to 274 in FY23 with 5.49 Lakh customer base.
-
AUM growth from Rs. 117 Cr (FY16) to Rs. 1628 Cr (FY23). 14 times growth in 7 years.
-
MSME sector entry in FY17, MSME sector is between Rs. 50K and Rs. 5 Lakhs loan segment in Rural part of India (Non Salaried Rural Segment, two step above the bottom of Pyramid.
-
MSME branches increased from 7 in FY17 to 58 in FY23 .
-
Per branch AUM grew by >5 times (Rs. 255 Cr in FY23) and number of branches grew by >8 times since FY17.
-
Creation of Bank account for people who were shunned as unbankable. Mobile app based loan application assessment and 100% disbursal through cashless mode.
-
FY 23 performance AUM Rs. 1943 Cr (58% YoY), Disbursement Rs. 1767 Cr (73% YoY), PAT Rs. 94 Cr (195% YoY), 5.32% is PAT margin for FY23.
-
Wholly owned subsidiary Namra Finance, has been assigned the grading of MFI-1(MFI One) by CARE Ratings. The rating is the highest possiblegrading for an MFI Company to manage microfinance operations sustainably. Lower cost of capital
-
Rs. 2700 Cr AUM is the target for FY24.
-
Microfinance, considerable runway ahead.
-
Gross NPA is 2.7%, Cost to income ratio has improved over time from ~55% to 32% in FY23.
-
Improved asset quality and reduced NPA has resulted into steller performance.
-
In any new branch 600 to 800 customers helps reach Break even, and time taken is 6 to 12 months.
-
Shift in Rural micro business owners from JLB (Joint Liability Group) to Individual Business Loan (trying Paytm type business model of WC lending). AFSL is having 2% business share out of this. Having a cautious approach in scaling.
-
Operating Model:
-
In Micro Fin Avg ticket size grew by 25.3% YoY at Rs. 45,750/-.
-
In two wheeler Avg ticket size grew by 6% at Rs. 69,000/- YoY.
-
In MSME Loan Avg ticket size grew by 7% at Rs. 75,000/- YoY.
-
Three major segment: MSME 15%, Two Wheeler 5%, and MFI 80% business share of AFSL.
Business Risk:
- Sustaining Growth Rate: Stable Rural Ecosystem with Large credit demand.
- Process Risk: Increase in Business volume impacts process efficiency.
- Funding Risk: Increased requirement of Funds for growing demand for Loans.
- Geographic Concentration: >50% of business share is from Gujrat and UP.
- Product Concentration: More than 80% business comes from MFI loans.
Q1 Fy24 Result:
- AUM Rs. 2143 Cr, Disbursement Rs. 537 Cr, Rev Rs. 149.5 Cr, PAT Rs. 39.9 Cr (26.69% margin), GNPA @2.5% and NNPA .1%.
- Total number of Shares increased from 85 lakhs to 94.28 lakhs, Raised Rs. 115 Cr for business growth.
- RBI New Micro Finance guideline raised household limit from 1.25 Lakh to 3 lakhs, more lending headroom.
- RBI FOIR (Fixed obligation to Income ratio) revised to 50% of all loans. Resulting lower credit cost for Industry.
- RBI removed pricing cap allowing lenders to go for risk based pricing.
- Collection efficiency is at >98%
Q1 Con call:
- Microfinance business area growth in 4 to 5 year will taper off and Arman finance wants to plant themselves there before competition reaches.
- Expansion of branches to continue aggressively but based on quality of customers.
- Bihar today stand at largest concentration of Microfinance in India, earlier it was Tamilnadu now its Bihar.
- ESOP for 700 plus employees (till field level) Avg 300 shares each (range 40 shares to 4000 shares).
- 3.5% is provisioning kept (Rs. 75 Cr) of portfolio value for ECL and regulatory reason. This is on higher side.
- Write off was Rs. 10 Cr in Q1 FY24.
- Cost of borrowing in Q2 to be 12.5%. 70% of borrowing was from PSU banks in Q1 FY24.
4 Likes
Q2 FY24 Result
- Asset Under management grew by 60.5% YoY at Rs. 2304 Cr.
- Gross Income grew by 73% YoY at 160 Cr.
- PAT grew by 105% YoY at Rs. 41Cr. From H1 this growth is 126% at 81Cr.
- FY23 PAT was Rs. 93.81 Cr, out of this Arman Finance has already earned Rs. 81 Cr in H1 FY24.
- No of Shares 94.28 Lakhs
- Collection efficiency at 98.2%
o Microfinance segment – 98.3%, PAT is >25% for this segment
o MSME segment – 98.6%, PAT is >25% for this segment
o 2W segment – 96.3%, PAT is >25% for this segment - GNPA at 2.48%
- P/B value is at 5.5 (2369/428) at for Bajaj Finance is 9.
- Capital Adequacy Ratio at 25.57%
Management Commentary:
“The microfinance industry has exhibited remarkable strength in the face of prevailing volatility and geopolitical tensions. The resilience of India’s rural economy has contributed significantly to India’s economic engine.
Company operational in 10 States with 385 branches. 42 branches added in Q2 FY24 and 49 in H1 FY24.
While staying committed to their core strategy of prioritizing asset quality over business volumes, they plan to further expand their presence in new states as an essential and strategic growth lever for the future.
GNPA improved by 99 basis points to 2.48%.
All values in Rs. Lakhs
Disc: Invested
5 Likes