To me, a large part of the negative pledging factor is already into the price… the co. doesn’t have ALM issues n is growing decently.
That’s why i am neither adding nor selling.
1 Like
I attended the earnings call and glad to note from some previous posts that quite a few friends from this forum were also there. Here are my notes
- Gross AUM as on 30th Sep 2018 was 6191 crores. MFI part was 5456 crores and non MFI 735 crores. AUM increased by 2.7% QoQ and 37% YoY.
- Cost to income ratio stood at 54% for the Q2. ROA was 2.7% and ROE was 18.8% for the quarter.
- Satin is now present in 20 states. The most recent state where it started operations in Q3 was TN.
- Business Correspondence business with IndusInd is doing really well and the AUM from this segment stood at 215 crores at the end of Q2.
- 96% of branches are now enabled for cashless.
- Enough liquidity available with the company. No ALM mismatch.
- Company saw the increase in the interest rate at the end of Q2 by 50 -75 basis points. Confident that it can pass the increase to borrowers without impacting margin.
- H2 is always significant from the growth perspective.
- Book value was at 205 at the end of Q2.
- Collection efficiency was 99.5% on loan disbursed from 1st Jan to 30th Sep 2018, this bucket constituted 2/3rd of the loan book. Older loans had collection efficiency at 97.7%. Overall collection efficiency calculated by me was ~98.2%.
Notes from the discussion
- Slow disbursement growth: During festivals the disbursement goes up in the north part of the country. We normally do branch expansions in H1 and actual disbursement comes in H2. Second reason is because of ILFS crisis everyone was looking at ALM and going slow.
- Liquidity Situation: Through multiple sources already sanctioned cash is available to the tune of 1000 crores. On tap liquidity from IndusInd.
- Cost of funding right now: Last quarter it was 11.5%. Would increase by 50 to 75 basis points. Will pass to customers.
- Competition: Nothing has changed for us.
- PAT and AUM projection for FY 2018-19: PAT 165 crores. AUM will grow 5-7% less than 40% projected earlier but PAT target of 165 crores would be met.
- Rejection rates going up: 12% in Q1 to 16% in Q2. This keeps on changing. We are becoming more careful and filtering wherever we have concerns.
- How the smaller MFIs are fighting. What is the ground level reality: Facing liquidity issues. MFIN is grouping them for securitization to raise money.
- IndusInd collaboration: Going well. Good growth.
- Why PAR90 has increased by 15 odd crores despite better collection. Mr. Singh explained that it happens because of bucketization of loans. Not a linear relation between collection efficiency and PAR90 in the short term.
- Geo Distribution: Latest entry in TN. No state would have more than 20% of portfolio by 2020. UP has reduced to early 20s.
- Pledging: Current promoter pledging is 48%. Not a direct answer about reducing it. Not thought of it and will look at it later.
My comments
- I liked the fact that they are going slow on disbursements during this time and focusing on profitability. Liked that rejection rates were up.
- They should absolutely look into reducing promoter pledging.
- Good to see the focus on use of technology resulting in the reduction of cost to income ratio and cashless disbursements.
- Good show on collection efficiency. Good that they were able to recover 6 crores from the PAR360 bucket.
- PAR90 is still 220 crores. However improved collection efficiency gives confidence that it should improve. But still need to be monitored carefully given the turbulent time and upcoming elections.
- Should end the year with EPS of about 34 and book value of about 225.
Please note that there is possibility that I would have heard things incorrectly, and so points mentioned by me would be factually incorrect. I own shares of Satin and I definitely have ownership bias. This is not a buy or sell recommendation.
Cheers,
Krishna
7 Likes
Hi Krishna, should we communicate to Mr. Singh to finish/reduce pledging given how bad high pledging is taken by the stock market? I guess the loan should be 60-80 cr. against 115 cr. Worth of pledged shares. (We can’t be exact as my question on the concall was cut short by the other guy, not by mr.singh) . That should not a very big amount for mr. Singh, I am guessing.
3 Likes
Thats a good idea. Or we can even initiate to discuss this further with Mr. Singh to have a better sense of nature of borrowing against pledged shares.
You in Delhi NCR by any chance?
Yes Mayank, I am from Delhi ( currently in Delhi) but traveling to Bangalore in few days. Following is the contact page for satin -https://satincreditcare.com/contact-us/
Mayank and Vaibhav - I had reached out to Satin’s management in July 2018 regarding pledging. I also spoke to Company Secretary in length but could not reach to Mr. Singh. However the CS could not give any information on the pledging part. After my phone discussion with CS, I got this reply from their investor relations department
"In this regard, we wish to inform that the Promoters raise money for investing into the company through various sources, Loan Against Shares (LAS) being one of them. This money is utilized to infuse funds in SCNL from time to time, and this practice is in line with the industry norms. "
Frankly I was not impressed with this bookish answer. Based on my experience I would suggest that insisting on meeting Mr. Singh would be a good idea. I am in BLR and so for me personally meeting would not be possible but happy to jump on a call.
Cheers,
Krishna
3 Likes
Frankly speaking, if this this the case that promoters have raised money to invest in satin itself, then it is not such a bad thing at all. May be this is how they have raised funds for subscription to warrants.
Shows:
- promoters don’t have any other source of wealth.
- They are keen to invest in the company and looking it as growth opportunity.
- wants to retain sizeable portion in-case IndusInd or some other banks comes calling BFIL style take over.
2 Likes
Am fairly certain that it was cut short on cue by Mr. Singh. So, I would be very surprised if you get a straight answer on this.That sais, I do like the way their overall metrics have improved which is what keeps me interested
Disc: invested from around 300 levels and watching
1 Like
1 Like
Couple of comments coming from the CFO of Satin
1- The liquidity situation has improved over the last ten days. Anyway there was not any problem for Satin on this front. However they were cautious because everyone was cautious.
2- The AUM growth would be 30-35% this year.
More details including broader views from the MFI industry captured here https://www.moneycontrol.com/news/business/economy/liquidity-situation-improving-in-financial-sector-rbi-has-done-enough-feel-mfi-players-3205881.html
Cheers,
Krishna
2 Likes
d42c8fa2-b946-4c8b-9478-c7897f24ff4d.pdf (1009.7 KB)
Satin raised 230 Crs NCDs at 11.1% for 5 years (avg maturity around 3.5 years). Great coupon rate for A- rated company. Looks like there is no liquidity issue for satin at least.
2 Likes
In the past few months I have been confused with what’s going on with Satin. Agree that NBFC industry has been witnessing some headwinds but not sure if funding has been an issue here. For record even in the Q2 earnings call Mr. H. P. Singh said that he has money available for lending on tap. He also said that company has more than 1000 crores available which they can lend whenever they want. And even then the company decided to to go slow on increasing the AUM. In the meantime some companies in the MFI sector focused in the same region where Satin has most of its AUM have grown at fast clip. For example Fusion has grown its AUM by 80% plus yoy while Satin slowed down its disbursements.Even the industry average lending rate in Q2 was higher than that of Satin. So I am confused that they had the money to lend and still then did not disburse, and now they are saying that with the infusion of this 213 crores they would expedite lending. Not sure what was stopping them earlier and now what changed that gives them confidence to go big. Overall I do feel that there is something that company has not been sharing openly. I expected them to be conservative in disbursement if they were indeed concerned about NBFC crisis or elections (the main election is still good six months away and not sure that they were waiting for just the assembly elections to get over). The key concerns I have are
1- Why they slowed down in Q2
2- Conversion of warrants issued at much higher price to promoters
3- Even after more than two years since Demo woes are still not over for the company with more than 100 crores of bad loans still still sitting on the book for which provisioning is not done.
4- Continuous pledging.
Cheers,
Krishna
PS: Safe to assume that I would have done transactions in the past month.
1 Like
Will v see NPAs getting cropped up again with d onset of loan waiver @ state level as well as at National level?
Traditionally NPAs haven’t arised in MFIs due to farm loan waivers because of how the demographic is different and how joint liability works. Moneylife had an article on it:
Any idea what’s up with d company, since a week promoter r either acquiring shares r releasing d pledged stakes?
Hi,
I was looking at shareholding pattern for 2018 in balance sheet, the promotor holding consists of following companies,
When I searched with Company names all companies are registered at same address and directors related to family members,
It looks like that all companies are created for purpose of share holding and there is no sizable business for these companies. Does anybody have more information on promoter quality and why had floated number of companies instead of one holding company. Is there any possibility of diverting company funds to these shell companies?
Disc: Invested in the Company.
You should read Cobrapost article on DHFL thoroughly and try to get balance sheet, profit & loss and charges documents of these companies for the website of MCA.
Good question. Maybe we should wait for Cobrapost to pick it up.
If they wanted to siphon of funds I really don’t think they would use entities which actually own shares in the company and a listed as promoter entities. Lot of companies have this.
Fundamentally the stock is trading at 1.1x book value and will do over 20% roe in FY19. On a 1200 crore market cap the pat will be over 200crores. MFI is not impacted by the NBFC crisis as banks need to focus on priority sector lending. Moreover the company is adequately capitalized with 30% CAR. Growth is expected to be between 20-30% per year. Competitors are trading at 2-3x book value
One risk is farm loan waivers but historically they have limited impact and the companies is taking adequate measures to mitigate the risk.
Sometimes market disruptions give unbelievable opportunities.
5 Likes