SKS MICROFINANCE WAS PERCEIVED AS THE BLUE EYED BOY OF INDIAN MICROFINANCE SECTOR WHICH AGAIN WAS CONSIDERED AS THE NEXT BIG THING. BUT WITH THE ANTICS OF ANDHRA PRADESH GOVT, THE SECTOR AND THE STOCK HAVE TAKEN A BACK SEAT WITH SKS BEING HIT HARD TO THE TUNE OF 50% IN TERMS OF VALUATIONS.
SOME DETAILS ON SKS MICRO:
IPO was priced at Rs 935 per share (Rs 50 discount to retail investors)
Current market cap based on closing price of 676 is around 4865 crores.
Promoter holding is around 57% post the IPO.
It is the largest mircro finance institution with around 2100 branches and employing around 21000 persons as on March 2010. It has presence in 19 states with the bulk of business coming from Andhra Pradesh (29%), West Bengal (16%), Karnataka (11%), and Orissa (9%).
SCALABLE BUSINESS MODEL:
The business of SKS is a scalable one and with the company having accessed the capital markets and collected funds, some part of capital requirement has been taken care of.
ASSET QUALITY – Till March 2010, the NPA at net level were at 0.16% which is negligible but this part of the business remains the key monitorable paramter in the wake of the current controversy.
YEAR 07 08 09 10
Operating Income(mn) 445 1625 5061 8736
Op profit 54 256 895 2341
OPM 12 16 18 27
NP 22 166 797 1748
As can be seen from above data, the company has been growing at a scorching pace till date.
Problems are two fold as I see them
First is that the company is likely to see lower OPM due to reduction in interest charged as guided by the govt
Secondly there could be some cash crunch because govt has guided the company to collect payments on a monthly basis instead of weekly basis as was the earlier practice.
Post IPO equity dilution, the EPS for FY 10 stands at around 24. Book value is around 224.
NOW THE MILLION DOLLAR QUESTION IS WHO WANTS TO BITE THE BULLET AND AT WHAT PRICE?
Here the assumption to be taken is that the company may not see the scorching growth shown earlier and margins may also be reduced but that does not take away the facts that the company is the largest MFI in the country and the MFI sector is likely to see good growth going forward.
On the management interview shown on TV recently, the management seemed confident of overcoming the crisis and had a target of loan disbursement of around 7500 crores and ROA of 5%.
WOULD LIKE VIEWS OF FELLOW INVESTORS.
Disc: No holding.