IndusInd Bank + Bharat Financial Inclusion

Pranav
It is very difficult to predict because we do not know which route SKS will choose to set up bank. One report I read suggests that like IDFC, SKS will converts itself into bank holding company and set up a separate bank and transfer microfinance business to it. In that case, that report says, SKS will need to raise 2500 cr fresh equity from the market. Now if sks raises this equity at current market price the book value per share will jump to 250-300 rupees. Then you can do the math as banks are generally quoted as multiple of book value. But these are very extreme assumptions and even a small change in a these will dramatically change valuation. So be cautious when using these outlook

Any views on latest Results?

A ~16% correction in stock price today, and about ~35% correction from the recent highs. Is this only because they failed to get small banks’ license? I think that is only the symptom. With the advent of small banking license the nature of competition SKS’ faced could be different.
After the MF crisis, SKS was successful because SKS had access to large amount of capital at competitive rates(as this was a listed company) and as a result it was able to fund(lend) growth much better than its competitors. Now with the advent of Small Bank licenses, these 10 smaller banks will also have access to large amount of CHEAPER capital. Now SKS will face much stronger competition. Having said this, these things will take time to materialize. It will be atleast 2-3 years before SKS has full blown competition.

SKS’ next steps will be interesting -

  1. Are we going to have a competitive industry - lower NIMs?
  2. Will SKS sit quiet and continue with its existing strategy - In that case, will they be able to continue to grow at the same pace? (my view is this segment is still under-penetrated, and there is room for every player to grow. its not as competitive as the urban Housing Loans market)

Here is where the importance of the key-man(CEO/MD) changes the outlook of how a company stands out from the rest.

Interesting times ahead!

Thanks,
Ravi S
Disc - Continue to hold SKS. The allocation though has come down significantly as I increased my overall PF size in the last few months.

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SKS reports another set of good numbers.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/12D7EED0_E780_401B_9666_45D7E77E3923_202506.pdf

Loan Disbursals up - 57%
NII up - 59%.
NP up - 37%
Cost of borrowings down 90 BPs to 11.2% from 12.1%.
Cost to income ratio down by 5.3% to 47% from 52.3%.
Gross NPA 0.2% and Net NPA 0.1%.
ROE of 26.9%.
Avg. ROA of 5%.
H1 Book Value of 94.9 and 119 including deferred tax arrangement.
Collection efficiency of 99.7%.
Cap. Adequacy ratio of 24.6% against RBI mandated 15%.
Profit guidance raised to 290 Crs. from 235 Crs.

Discl: Invested.

Regards.

The September quarter results are extraordinary. At a time when lending came to a halt, these guys managed to lend more and cover more of the previously leant money.

Some key big investors are also investing in the company. After the recent small bank license fail

but why is price crashing post results?Satin creditcare the 2nd listed MFI is on 20% UC for last 2 days on the other hand

When are the next set of results expected? I am unable to find the dates for SKS results on the results calendar on BSE website

great resukts. no issues.

CONFERENCE CALL - from Capital Markets

Proposes to reduce expense ratio to 40% and targets 50% AUM growth for medium term

SKS Microfinance conducted an analyst meet on 28 January 2016 to discuss company financial performance for the quarter ended December 2015 and prospects. Dilli Raj, President of the company addressed the meet:

Highlights:

The Company’s marginal cost of borrowing declined to 10% in Q3FY16 from 11.2% in Q2FY16, while its weighted average cost of borrowing stood at 11.5% in Q3-FY16, down from 12.1% in Q2-FY16. Also, the Operating Expense to Gross Loan Portfolio ratio dipped to 6.8% in this quarter from 7.6% in Q2-FY16. On account of these two achievements, the company is probably the most efficient MFI in the globe.
Loan disbursements jumped 93% to Rs 2980 crore in Q3FY2016. Non-AP loan portfolio galloped 93% Rs 6177 crore at end December 2015.
The total number of loans disbursed witnessed a 49% growth to 18.99 lakh in Q3FY16 from 12.71 lakh in Q3FY15.
The company had incremental drawdowns of Rs 1478 crore (Rs 931 crore in Q3FY15) including securitization transactions of Rs 616 crore and Commercial Paper of Rs 100 crore. The Company also originated Rs 260 crore worth of loans under managed portfolio in Q3-FY16.
The Company has reduced the interest rate charged to borrowers from 20.75% to 19.75% on income-generating loans extended on or after 07 December 2015. With this reduction, SKS Microfinance Limited charges the lowest rate among private MFIs in the world. There has been an aggregate interest rate reduction of 4.8% since October 2014.
The company has availed Rs 100 crore refinance from MUDRA at 10% per annum.
The un-availed deferred tax benefit of Rs 389 crore and minimum alternate tax (MAT) credit of Rs 71 crore will be available to offset tax on future taxable income.
As at end December 2015, cash and cash equivalents of the company stood at Rs 886 crore.
Capital adequacy of the company was comfortable at 23.9% at end December 2015.
The company targets to improve such fee income to 20% of PAT in the medium term from 12.6% in FY2015.
Medium term outlook

The company has reduced cost-to-income ratio from 74.5% in FY2014 to 61.1% in FY2015 and 46.9% in Q3FY2016. The company proposes to reduce cost-to-income ratio to 40% in the medium term.
The company would maintain its lending rate below 20%, which is 2-3% below competitor’s interest rate. The lower interest rates also reduced any political risk to the business.
The company plans to improve the share of non-MFI earnings to 20% of PAT in the medium term from 12.6% in FY2015.
The company expects to maintain NIMs at around 10%.
The company targets AUM growth of 50%.

2 Likes

Very strong execution on growth. Borrower base growth picking up is very positive showing growth has legs. See EPS >30 for FY17 and looks cheap at 20x. Also positive for other MFI names.

Disc: Invested

Concall - from Capital Markets

Expects 45% AUM growth and 50% PAT growth for FY2017

SKS Microfinance conducted an analyst meet on 05 May 2016 to discuss company financial performance for the quarter ended March 2016 and prospects. Dilli Raj, President of the company addressed the meet:

Highlights:

  • The company continues to maintain its lead as the most efficient microfinance institution in the world, post its distinction in November 2015 of becoming the first private sector MFI in the world to charge a sub-20% interest rate. The company do not expect any further reduction in lending rates for next 2-3 quarters.
  • The Company’s marginal cost of borrowing declined to 9.2% in Q4FY16 from 9.9% in Q3FY16, while its weighted average cost of borrowing (historical) also eased to 11.1% at end March 2016 from 11.5% at end December 2015 (10.2% in FY16 – the lowest in the microfinance sector; 11.9% in FY15).
  • Reduction in the cost of boring was driven by overall decline in interest rates. The company has also witnessed sharp decline in cost of securitization transaction to 8%. As per the company, the spreads on securitisation deal compared with the bank term loans have widenedto as much as 250 to 300 bps compared with the normal levels of 150 bps.
  • The gross loan book of the company excluding the states of Andhra Pradesh and Telangana galloped 84% to Rs 7677 crore at end March 2016 from Rs 4171 crore at end March 2015, while surged 24% over Rs 6177 crore at end December 2015.
  • Loan disbursements jumped 63% to Rs 4066 crore in Q4FY2016 over Rs 2494 crore in Q4FY2015.
  • The company has targeted about 45% gross loan portfolio growth and net profit growth of 50% for FY2017. As per the company, the AUM growth will be driven by growth in customers base and ticket size.
  • In the next three years, the company is targeting to increase its customer base by 25-30% annually, while ticket size is targeted to be raised by 17% which would together drive the AUM growth by 45% annually.
  • The company proposes to increase its customer base mainly driven by higher recruitment of loan officers.
  • The gross portfolio spreads of the company declined on sequential basis to 9.6% in the quarter ended March 2016 from 10.1% in the preceding quarter, while also fell from 9.8% in the corresponding quarter last year.
  • Net NPA ratio declined to mere 0.04% at end March 2016. The capital adequacy ratio for company was strong at 23.1% at end March 2016.
  • The company has completed securitization transactions worth Rs 1621 crore rated as ‘AA (SO)’ and asset assignment of Rs 507 crore in Q4FY2016.
  • The Company added 8.45 lakh borrowers during FY16, and ended the year with a borrower base of 46.37 lakhs. Employee strength increased by 24% to 11,991.
  • The un-availed deferred tax benefit of Rs 357 crore and a minimum alternate tax (MAT) credit of Rs 97 crore will be available to offset tax on future taxable income.
  • The Company’s Cost to Income stood at 48.3% in FY2016 down from 61.1% in FY15. The company expects technology initiatives to help improve operating efficiency, thus the company expects to further reduce cost to Income ratio to 40% ahead.
  • The company has proposed to change its name to Bharat financial inclusion Limited. As per the company the higher rural presence has led the company to change its name.
  • With the new regulation requiring banks to meet priority sector lending targets on quarterly basis against on annual basis currently, would help the company to reduce its cash balance requirements as securitization deals would take place throughout the years instead of only in Q4 currently.
  • The company has always remain well capitalised and held healthy liquidity on balance sheets.As per the company, the capital adequacy ratio will be maintained above 20% at any point in time. Board of the company has approved capital raising of about rupee 750 crore which is most likely to be conducted in Q3 or Q4 of FY2017.
  • As regard to the emerging competition from Small Finance Banks, the company don’t expect any change in its strategy.
3 Likes

Excellent Q1 results declared by SKS Micro. Net profit increased to 235 crores(including MAT credit: 128 crores) from 68 crores last year.

“Bharat Financial Inclusion Limited has informed the Exchange that the Company formerly known as SKS Microfinance Limited, hereby intimates that it has come to its knowledge that its President, Mr. S Dilli Raj, has been arrested by the Enforcement Directorate in respect of an on-going investigation in a complaint filed by IDBI Bank Ltd. against First Leasing Company of India. ( First Leasing )”

https://nseindia.com/corporates/corpInfo/equities/AnnouncementDetail.jsp?symbol=BHARATFIN&desc=Updates&tstamp=010820162006&

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IndusInd Bank is in talk with Bharat Financial Inclusion Ltd. to take it over.

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can u please mention the source of your information ?

Could anybody help me steer me out of this confusion circle ?

BFIL posted a loss of
1323 crores in FY 12
297 crores in FY 13

An accumulated loss of 1620 crores.

My neighbor chartered accountant says, they need not pay tax upto 1620 crores for the next 8 years. They will offset it with profits gradually.

They have been paying tax in FY-14(3%), FY-15(23%). Inconsistent against the corporate tax of 35%

I have gone through the Tax Deferred Asset. I did not understand, what they meant. It only added more confusion.

Any reference to learn such is highly appreciated.

Disclosure: Invested from 800 levels.

2 Likes

Has any one tracking Bharat Financial Inclusion? In spite of the losses in recent quarters stock seems to be headed north unlike other MF/SFBs. Just curious to understand whether any one has analysed this behavior.

There have been strong rumors in the market for the past 3 months that at least 3 private sector banks have shown keen interest in acquiring stake/ acquire outright here. This is the latest news which has come out today.

The management has not done anything to dispel the rumors either. They have maintained their guidance of PAT of around Rs.450 Crores for FY18 despite substantial Q1 losses, which means that at the current valuation of Rs.12,500 Crores, it is trading at around 27x, which is fairly rich in my view. However, I won’t be surprised if a deal is announced at Rs.1,200/ Share, valuing the company at around Rs.17,000 Crores (around 35x FY18 earnings). The runway remains very long for Indian MFIs and their PAN India presence makes it a perfect acquisition target. Will be interesting to track the stock movement of peer group companies in anticipation of this deal.

P.S.: Don’t own this scrip. Keen observer of this sector.

The question is why would BFIL get a valuation which others (ujjivan, equitas etc.) would not get? Is it because they are saddled with the SFB set up costs? or is it because BFIL business has more strength compared to them?