Satin Creditcare Network Ltd - Reaching out!

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SATIN CREDITCARE NETWORK LTD :

http://www.satincreditcare.com/index.php

Satin Creditcare Network Limited (SCNL) was formed in 1990 as a Non-Banking Finance Company (NBFC) with the simple concept of providing individual loans to urban shopkeepers for tiny businesses by Mr. Harvinder Pal Singh. Since then the company has expanded and evolved into one of the leading microfinance institutions in India with its current geography in North as well as Central India.

SCNL provides loans to both urban poor and rural poor to meet their productive requirements in starting new business or for growing an existing business. The company’s microfinance operation is based on both Joint Liability Group(JLG) model as well Self Help Group model (SHG).

At present, SCNL has its strong presence and serves its clients throughout Bihar, Chandigarh, Delhi, Haryana, Jammu , Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and Uttrakhand . In addition to the above SCNL is also listed on Delhi, Jaipur, Ludhiana, Culcutta and National stock exchange recently.

It is backed by very strong financial institutions. Partners - http://www.satincreditcare.com/our-partner.php

Particulars 2011 2012 2013 2014 2015
Total Revenue (Cr.) 58.62 56.23 94 191 324
PAT (Cr.) 2.17 1.4 4 15.5 31.7
Total Assets (Cr.) 294 316 745 1115 2010

Book value was around 66/- as on March 2015.

SCNL received CARE Ratings of MFI 1 (MFI One) grading - the top most category in MFIs grading.
As on March 31, 2014, the Gross NPA percentage was 0.02% while Net NPA percentage was Nil.

Previous CARE report - http://www.careratings.com/upload/CompanyFiles/RR/Satin%20Creditcare%20Network%20Limited-07-21-2014.pdf

June 2015 results - http://www.satincreditcare.com/pdf/Financial-Results-June-15.pdf

Latest shareholding pattern - http://www.satincreditcare.com/pdf/Shareholding-pattern-Jun-2015.pdf

Latest Annual report - http://www.satincreditcare.com/pdf/Book-final-05.pdf

Many YouTube videos are also available - https://www.youtube.com/results?search_query=satin+creditcare

Positives:

India is a huge market for microfinance – it has more than 400 million poor seeking an opportunity to reduce their vulnerabilities, create assets and ensure income security. India’s microfinance sector is lauded as a savior of the poor and a good bet for investors.

According to industry reports, microfinance institutions (MFIs) would grow at an annual pace of 30%-35% over the next three years on the back of improved fund availability. MFIs have committed to opening at least 30 million bank accounts within a year through tie-ups with banks as part of the government’s ambitious financial inclusion plan recently announced.

More can be read at…
https://www.linkedin.com/pulse/microfinance-institutions-mfis-growing-breed-india-arup-das

Satin’s presence in underpenetrated north and central India micro finance market provides ample opportunity for sustainable future growth.

Good asset quality.

Points covered as above.

Negatives:

Satin (And even big brother SKS) was not given small bank license by RBI. If given, it would have helped satin to bring down borrowing cost, reduce political uncertainty and more lending flexibility. Anyways it is backed by strong muscles that liquidity won’t be any problem for Satin. Borrowing in last few months shows credentials.

More can be read at

I am not aware about competitive advantage satin enjoys in North and Central India, but overall market is huge and many companies can coexist and grow.

This is my first attempt of starting a new thread. Views are invited.
Disclosure: Bought few share at 190/- and its 5% of my portfolio.

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Co promoters HP Singh is a CA & his brother Satvinder Singh is a MBA from IMT ,.They are coming from a service class background & enjoy good reputation in NCR where the co is headquartered.

As such HP Singh is a first gen entrepreneur with growth mindset.The type of growth they have shown is superb over last 4 years with EPS increasing from 0.78 in fy 11 to 12 in fy 15.This year EPS may touch 20 as last qtrly EPS was 4.5 & there is good infusion of funds by PE players.

Co had come with IPO in 1996 & got listed at DSE.It transformed into MFI in 2008 & sinc ethen has been on strong growth path.It got recently listed at NSE only.

Almost 50% equity is with quality PE players like Currently, it has 5 foreign investors - ShoreCap, Danish Microfinance Partners K/S, Microvest, Norweign Microfinance Initiative Fund and SBI FMO Emerging Asia Financial Sector Fund Pte Ltd - who jointly hold 48.98 per cent stake in the company.This is a big comforting factors as these instt are specialized MFI investors who wud have invested only after doing their home work.

The first investor Lok Capital has already got a successful exit in 2013.

With 35% stake with promoters issue is of liquidity.Some shares are still in physical form.

But bank was unsuccessful in getting a small bank license alongwith SKS micro while 8 MFIs have got the license.

Overall the co qualifies my checklist of good promoters,good opp size & return ratios.

Discl- recently invested @223

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Thank you Vivek for your views and information. Today Satin moved up with 66% of delivery. Planning to hold it for long term.

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The best part I like abt MFI business in India in general n Satin in particular is v little NPAs which is the most imp criteria for any financial organization. This hints that average BPL Indian is far more honest then average industrialist expert in creating NPAs for Indian banks.

Recent RBI regulatory supervision over MFIs post AP fiasco & advent of credit bureaus specializing in MFI like HighMark & Equifax have also helped.Seeding of these data by Aadhar will further strengthen the database.

Fact that MFIs like Satin helps the hapless villager in providing loans at v reasonable interest viz a vis usurious moneylender like Kanhaiya Lal of Mother India movie in income generation activities is also most imp.

Satin also has the advantage of being leader in most under penetrated states of UP,MP,Bihar,J&K ,Raj where the competition intensity is v less.As such opp size remains huge .CARE has been upgrading rating to BBB+.

Risk is non receipt of small bank license while most of competitors have got it,just enough CAR which may lead to imminent equity dilution due to huge growth & poor liquidity as 85-90% stake is with PE & promoters.

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@Vivek_6954

Vivek

I see that you have good exposure towards MFIs… Whats ur views on competition esp that RBI has given licences to new payment banks + Mudra scheme launched by GOI? wouldn’t it hurt the business of these companies?

Regards
Sreekanth

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Here is a perspective from a very season finance professional.

As one can see, there is a section of people who are willing to pay even 10% interest per day for a small sum, which they in turn use, to earn their livelihood.

Access to finance is a critical factor for growth at levels of society.
Imagine this, even with so many PSU’s, NBFC’s, Private Sector Banks etc we are still a hugely under banked society so what different is a handful more of payment banks going to make to the overall pie ?

I think there is a enough business for many more institutions at these levels.

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Good morning friends,

Few points from my side

  • Bond between MFI and borrower is stronger than what you and I have with SBI or ICICI. Especially women are very loyal customers.

  • MFI usually lend in phases, say first 15000, then 30000 to 50000 to the same customer/group. So there is growth even from old Customers.

  • Any MFI which is converted to small bank will have some cost and adjustment time. Not all can survive the change.

  • Won’t these small banks give priority and shift to larger sum of lending?

Few more interesting links

Every industry has its pros and cons.

I am not expert in financial sector so views from experts are always welcomed.

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Satin has recently got the funding from Mudra Bank at a v competitive rate of intt.These refinancing at competitive rates takes care of some aspects of disadvantage of not getting the small bank license.Opp size remains large for MFIs n small banks both imo.

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An Informative report on MFI sector as well as detailed research report on Satin CreditCare Network.
http://research.religarecm.com/INDIA/India%20Microfinance%20-%20Sector%20Report%2019Aug15.pdf

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The company has grown the loan book very, very aggressively from 50,000 Rs to 2150 Crore Rs, over past 25 years, roughly CAGR of 60%.

Importantly, past the 2011 M.F.I. hump, company has returned to same growth!

In North India the competition is relatively benign in Mirco Finance sector.

The key risks I.M.H.O are political. This may be a good trading bet.

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Issue is of v low floating stock in Satin.50% of float is with PE players & 36% with promoters.Some shares are still in physical format only as issue had come in 1996 & there has been no dividend given since then.

There are 4 cos Megh Secirities,Bhawani finvest,RajSonia consultancy & Linkage securities holding nearly 10% holdings.Which are tehese cos?Can someone do some work on these cos & tell more about them?

Little buying and price shoots.Buyers beware.

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Seems there is good demand for quality MFI in the investor community due to huge opp size ,v little NPAs inspite of lending without collateral and quality professionally qualified management a CA Mr HP Singh in case.The recent run up has also been v sharp

Few extracts from above new item

“We have shared our mandate with one fresh venture capital investor and
one existing investor. A larger portion of the equity is likely to come
from fresh investors by February next year. Also, the tier II capital
will be in place by December this year,” said Vivek Tiwari, chief
operating officer, Satin Creditcare.

Existing investors in the company include Danish Microfinance Partners,
Microvest Capital Management, SBI Ven Capital and Shorecap. In 2013, Lok
Capital had sold its stake in Satin Creditcare.

The company has raised Rs.1,500 crore debt this fiscal year and in the next six months, would bring in Rs.2,300 crore through various banks. “The fresh funds would help us tap a 70%
growth in business and cross Rs 5,000 crore gross loan portfolio by next
year,” Tiwari said.

After the Reserve Bank of India granted small finance bank licences
to eight MFIs, the industry hopes the funding scenario would improve,
not just through banks but also the debt markets.
“The sector looks very promising now and is over the hump with strong
reinforcement and governance abilities. It’s not that investors are
suddenly chasing nor are they pulling out. From an equity point of view,
there seem to be more of private equity investor interests than venture
capitalists,” said Kshama Fernandes, chief executive of IFMR Capital,
which acts as structurer, arranger and investor for companies that lend
to the financially excluded.

But why the leader of pack SKS Microfinance falling like a brick inspite of giving stellar results ?

How come the NPAs are so less inspite of lending without collateral?Views invited.

Discl- As disclosed earlier recently invested @ 223

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Vivek,

Recently talked to a friend from the fastest growing MFcompany, currently spreading its operations in Gujarat and also got small bank license.
I asked same question about negligible NPAs on books. Reasons for low NPA could be -

  • With money, MFIs also lend knowledge and give guidance, especially in rural areas.
  • In urban areas, MFIs do check consistency and prospects of business and borrower.
  • Constant vigilance
  • Relative short repayment cycles that can improve financial discipline
  • Desire for getting higher amount loan from next cycle does play a role in some cases.
  • Under penetration that limits multiple borrowings and increases trust bound dependency of borrower.
  • Daily churn businesses can survive with even 100% rate.

Another interesting read

Discl : Invested

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@anand6 and @Vivek_6954 and others have covered the relevant points on Satin and MFI nicely.

I think the NPAs are less due to

a) behavioural aspects like social/peer cognisance
b) Tiered structure of loan (quantum of loan increases as they complete pre-paying past loans)
c) Group loans
d) Relationship with lender due to timely/needy lending
e) If defaulted, the next option is from loan sharks which is very burdensome.

Particularly with respect to Satin vs. SKS Micro, I’m not sure how relevant is this valuation metric but I typically go by this -

a) Valuation Approximate figures -

  1. SKS : AUM/Market cap = 6000/6000 = 1.
  2. Satin: AUM/Market cap = 2200/1100 = 0.5.

PE and Book value wise as well Satin is a bit valued lower than SKS while I think Satin needs to be valued at or more than SKS valuations due to reasons mentioned in the thread I have initiated and below.

b) Geographic presence -
Satin is working in relatively under penetrated North Indian market and it has first mover advantage in some important states like UP/Bihar and also the leader in these important states.

c) Promoter stake, quality, experience -
I think both are neck to neck here and Satin would have upper hand as even during the AP fiasco days the NPA level did not cross 0.3%, which is great.

d) PE investors -
As Vivek mentioned, the PE investors are specialised MFI investors, for example NMI - Norwegian Microfinance who also invests in other countries like Bangladesh which is the originator of Microfinance concept.

http://www.nmimicro.no/about-nmi/introduction

e) Debt ratings and Opex/AUM metrics -
The current debt rating of BBB+ will move few notches up as the company ups scale with efficiency and so cost of funds will come down and better profitability while the same scope for SKS is limited as already SKS costs of funds is lowest among its peers. Opex/AUM for Satin is the lowest at around 6% which provides the efficiency with which Satin operates.

The risks are already mentioned in the Indian Microfinance thread by others and me.
As a general note, Microfianance companies should do well with the required regulations almost in place. Passage of MFI bill should provide further fillip (I need to read further on this).

Related thread initiated by me for further details on risks etc:

Disclosure: I hold Satin shares and this is a genuine discussion on the company. You need to evaluate and invest according to your risk profile.

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I did a comparative analysis of AUM and return on AUM for 4 listed NBFC. Please find below

Return on AUM of Satin is lowest at 1.5%. I feel Return on AUM should be important consideration while undertaking valuation for the company.

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Absolutely, this is where the opportunity lies in investing in Satin, in my opinion because of the below -

The above might be due to cost of funds being high for Satin (BBB+) when compared to SKS whose cost of funds is lowest among MFIs. I do not have much idea on Capital Trust and Arman, but I think they should not be compared yet

  • because their AUMs are too small in comparison and more importantly,
  • Capital Trust is not an MFI I think and Arman’s AUM has 50% of MFI and 50% of other loan book.

FY16 Net profit of Satin will almost double with about 50% increase in AUM because -

  • H1 FY16 profit of Satin is almost equal to entire FY15 profits so we can expect a similar trend in H2 with H2 typically being better than H1.

RoE and RoA of Satin are around 18.6% and 2.0. Management expects RoE around 18%-20%.

Note: SKS I believe is not paying full taxes as it has accumulated losses during AP fiasco which are being offset, so the tax is around 20%.

Note: Since I have studied Satin, I’m putting my thoughts here only, please do not misconstrue this as my propagation, you must do your own diligence.

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@Anand6 @richdreamz

Any idea why the stock has fallen from the peak of 488.
Is there anything that I’m missing. Plzz let me know.

Thanks.

Discl : Not Invested.

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Natural behavior. Don’t expect any stock to go up in a straight line.

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@Anand6
Currently is there any limit on loans (valuewise or numberwise) that can be given to a borrower specified by RBI for MFIs?
Or any strict guidelines by RBI that secures our MFIs from the repeat telecast of AP debacle.

I’m just trying to understand that how AP like scenario can be avoided in the under-penetrated north India. Though RBI intervention has improved the regulations but are they enough to prevent another blunder.

Disc: tracking position. Building conviction!

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If I can reply to your query though it is addressed to @Anand6 -

  • The max loan amount that can be lent to an individual has been increased to 1 lakh by RBI recently.
  • One individual can at max take loan from 2 MFIs.
  • The credit rating agencies play a very important role here. With time they should be able to build a robust data so credit appraisal process can be improved much further.
  • The regulations now are much better than what existed a decade back because the below parties now play the required role
  • MFIN, RBI, rating agencies, Microfinance specific PE investors.
  • As per a research note on MFIs --> Microfinance proponents have long argued that microfinance as an asset class deserves special attention due to its low beta, or low correlation between the performance of microfinance assets and the overall economy. This claim first achieved prominence in the wake of the Asian financial crisis of 1996 when Bank Rakyat Indonesia, an Indonesian bank with a large microfinance portfolio, managed to escape the crisis relatively unscathed.
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