Thanks @richdreamz. That’s helpful.
It will be great if you can answer one more of my questions relating to political risk.
Is it possible for a particular state government to impart control over the lendings made by the MFIs?I.e. waivers of loans types.
What I understand it won’t be that easy for the govt. these days after RBIs involvement.
Thanks.
As long as they remain as “NBFC-MFI”, there could be political interference. But with active RBI these days and with passage of MFI bill, these risks would come down. Also, MFI industry does a lot of good for its customers who otherwise have to fall prey to loan sharks. RBI as well as government knows this very well after the AP fiasco. Recent call money scam in AP must also do a lot of good to MFI industry as people would get to know about MFIs who lend with proper regulations in place.
Once these NBFC-MFIs get converted to small bank finance companies and later into universal banks, the political risks will die down. But, for me personally, the moolah is in MFI lending as long as you can keep the NPAs in check and follow proper risk management principles.
Any investment is fraught with inherent risks, we need to take a call weighing the risks vs. reward, according to one’s own risk taking ability and knowledge of that particular sector.
I could find this article, it is old 23/Sep/14 but it says that Central Govt. bill tabled in Lok Sabha in May-12 was rejected by the standing committee on finance. Therefore is right to conclude there is no law governing MFI till a bill is passed by Parliament.
RBI is a regulator which regulates NBFC-MFI and not the MFI registered as society in the States.
Therefore it may be right to speculated that NBFC-MFI may be less susceptible to State Govt. interference.
There’s this link which i found useful for the whole sector.
http://www.vccircle.com/news/micro-finance/2015/04/17/microfinance-sector-poised-grow-robustly-five-years.
Key Points from the link:-
1."After the AP crisis, RBI has handled the sector very vigilantly, carefully and very
thoughtfully. The kind of policy and intervention that it brought in to satisfy
all the critics of microfinance is really commendable. It gave a framework,
brought in a different setup for NBFC-MFIs and now it is regularly reviewing
the quality as per the requirement and the fact that Bandhan got a banking
licence and RBI came up with the small bank concept, encouraging MFIs to
convert themselves, shows that RBI is serious about the sector,” said
Dibyajyoti Pattnaik, director at Annapurna Microfinance Pvt. Ltd.
2. Ind-Ra believes that competition from Jan-Dhan-driven bank credit, given that banks
would provide overdraft facility to account holders, may hamper the growth of
MFIs as loan demands take a hit.
While**Annapurna Microfinance’s Pattnaik says,"I don’t see competition; rather I see these as complementing one another as the
space is so large. There is still space for innovation and because there is a
large population of the country is out of the formal financial network, the
only way forward would be through microfinance."
*3. The report by Ind-Ra points to this contingency indicating that RBI rules have
transformed the policy to favour the incumbents. The report indicates that the
gross loan portfolio of large MFIs has increased from 79.6 per cent in FY14 to
83.2 per cent in Q2 FY15 while that of small players decreased from 3.4 per
cent to 2.6 per cent for the corresponding period.
4. The report also mentioned the high barriers to entry which
has constrained the MFI sector.
The NIM of this Org seems to be around 10%. Is it true ?
Disc : Less than 1% of my portfolio, recently bought.
yes MFIs/ NBFCs have 10% NIM.
Dear Anand,
How could you get shares at 190 levels? Listing was done some months back and the listing rate was near 350/-. Did you fill the IPO of the company?
Sorry Anand, missed out that the shares were listed on NSE 4 months back.
Till what I understand -
Assumptions -
1). Debt - Equity ratio is constant and is of 8.42:1 (from screener)
2). Company shall be diluting its share capital every year to pump in fresh funds to increase AUM. Fresh equity will be issued at the then CMP.
3). Stock will be fully valued in coming time, hereby AUM/Mcap will be 1 (like SKS microfinance).
4). Reserves for 2017 and 2019 includes expected profits of 60cr and 200cr(80 for 2018 and 120 for 2019) respectively.
5). Estimation of AUM of 4700 and 13300cr has been based upon the info gathered from the religare research report attached by jatin.
Request people to cross check and suggest any modification here.
Ujjivan Financial Services - an MFI has filed for IPO.
In due course I expect Equitas and Janalakshmi MFIs too to get listed on Indian bourses.
This should help Satin Creditcare narrow the current valuation gap between SKS and itself depending on valuations accorded to these IPOs. The bigger SKS is trading at 6 times the market cap of Satin Creditcare at current prices. While SKS is a market leader in South India, Satin is a leader in North India in most of the states it operates in.
Source:
this will give the size of the opportunity !
Discl : have started buying today
Discl : Added stock for tracking
This article highlights grave impact of pipelining and increasing farmer suicides, especially in the areas of uttar pradesh.
Should we value such companies basis PEs or AUM/M.Cap?
If AUM/M.Cap, why the same and not PE?
Satin and SKS both are trading at PE of 26-27 (odd levels). But, based on AUM/Mcap - Satin is undervalued and SKS is perfectly valued. What is correct?
When I feel AUM/Mcap - I see an issue. A company having high AUM but generating less profitability (OPM and NPM) tend to have lower Mcap compared to an equivalent peer (having same AUM but more profitability). In that sense satin having lower mcap is justifiable (having less margins compared to SKS). I might be wrong, but just want to understand.
I think it depends on the cost of capital also. Better cost of capital for SKS and the least loan interest rate in the market(as they claim) with highest profitability suggests that the business is far better than Satin (assuming what you have said is right). So, if the company is in the same sector, doing the same thing in a better way, deserves better valuation than other company. Remember that AUM can become NPA with a blink of an eye with the sector we are talking about. I think risk management of SKS must be better than Satin and that is why they are getting cheaper loans than Satin. Just trying to add something to the discussion.
General points, not that you all do not know, but may be a reminder -
Edit: SKS Micro came with very good set of results which goes to show that microfinance sector would continue to outperform and its business would be insulate to global conditions.
Religare’s estimate of EPS has gone for a toss. The were expecting an EPS of 18 for this FY but they will be reporting around 24 this year.
I think concentration can act as a boon as well as a bust. I tend to believe in diversification more.
I might have missed a point here and I would love to hear some key differences or positives of Satin over SKS.
Disc. Invested in SKS from 440 levels and it forms after this recent correction 10% of my portfolio.
the other side of the coin!
http://thewire.in/2016/01/15/why-microfinance-is-becoming-a-bad-word-all-over-again-18937/
Satin Creditcare came out with the results and they are outstanding and I was expecting such increase in profits anyway given the scorching pace at which the selective MFIs are growing. I think they are the best results that I have come across so far, except for increase in NPA provisions. I believe this quarter most banks and NBFCs are proactively providing a buffer for provisions which I think are reflected in increase in provisions.
I think, I should reserve further adjectives and not go over board given the turbulent times, sentimentally speaking.
Given the results of other companies, I think home finance companies (selectively) and MFIs (selectively) have shown relatively much better results and should most probably the first ones to recover given the quality of earnings and the visibility. Selectively is the key word here.
On any other day, I’m sure such results would have been welcomed with good uptick, but not today! Excellent results are given mild correction and bad results are handed out with deep correction and worse results, let’s not talk about them! The company has converted quarter of the warrants issued last year at a price of 130 (against SEBI mandated price of 105, which is a sign of good corporate governance as warrants are issued above the mandated price)
Link to the results:
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=0890f6f5-8989-4ef4-b53d-24329c6607a0
In a nut shell:
YoY FY15 vs. FY16 results:
65% increase in revenue from operations.
94% increase in profit after tax.
85% increase in NII (Net Interest Income).
The EPS for 9M FY16 is 13.39 vs. 9M FY15 EPS of 8.23. Full year FY15 EPS is 11.93. The company is likely to end the FY16 with an EPS of around 20-21. Q4 is the better quarter.
Numbers are given below,
The provisions are higher by ~6 crs this quarter than the previous quarter. Provisions are four times of the previous quarter number, while revenue increase by ~13%. The jump in provisions led to flat net profits of ~15 crores quarter on quarter, in-spite of a healthy increase in revenues. Had the provisioning been at similar levels, the profit would have been ~19 crores, that is, 25-30% higher.
