Shalibhadra Finance - microcap NBFC, growing steadily

Company’s DE ratio is 1.34, which is low when compared to its peers. Does it mean that if loan demand increases, it will be in a better position to pick up funds and lend it? Kindly confirm with explanation. Thanks in advance.

When we say a lending institution has low gearing, it typically means it can lend more

Think of it as operating leverage, this company can increase it’s loan portfolio much more while keeping within RBI Guidelines

If my balance sheet size is 100 and I have lent out 130 while RBI says I can lend upto 200, it means that this untapped 70 is my unrecognized operating leverage

Shalibhadra has enough of this hidden operating leverage. it is keeping itself over capitalized for now

Now with ratings and this kind of balance sheet, it can pick up funds much more in relation to loan portfolio size and easily scale up, in the past it grew at 20-25% while being overcapitalized, if it decides to to “balance” it’s balance sheet according to RBI Guidelines and it’s competitors, growth rate can easily go much beyond 20-25% :blush:


Superb analysis Manav. Really a unique hidden gem.
I have few questions. It would be great if you clarify those doubts.
What is management view on not utilizing balance sheet leverage?
I mean D/E of 1.5 is low for NBFC to utilize its potential, although it shows conservative view of management, which is good.
Also, what is reason for sharp 50% fall in stock in May 2013 considering steady performance? (Its not an important question though, can be ignored)
How much provisioning do they keep for NPAs?

Thanks in advance.

Vikas Kukreja

Disc: No holding in this company.

1 Like

I do not have direct contact with Management, but from the last 2-3 AR I get a sense that these guys recognize that they are overcapitalized and want to grow faster without sacrificing risk parameters

They have gone through pain in terms of getting rated and implementing softwares to integrate everything, I think of it this way, with overcapitalization they grew at 20-25% if they decide to step on the gas their growth rate will shoot up, the steps they have taken above are in a way positioning themselves for a larger loan portfolio and more growth without doing anything silly, so I am positive

Stock Movement - As can be seen shares are tightly held with large public shareholders and corporate bodies holding more than 90% of the outstanding shares along with the promoters, this can be a reason, small quantities can move stock price because almost 92% of stock is locked up

Provisioning - My banker friend told me they recognize accounts as troublesome if the account misses a single payment, they lend out money only for 12 to 24 months, so in a way all their loans fall into the FMLP bucket (Fast Moving Lending Practices) :grinning:

By the second miss, they recognize the provisioning fully, more than this I do not know, though the ICRA report mentioned that they have historically been able to recover money from hard delinquency buckets

This is really set up as a Fast Moving lending operating with fast moving loans

These are very sound and opportunistic loans = LTV - 75%, Short Duration, High interest, Customer owns House, this is the reason management is so focused on “IDEAL CUSTOMER”

Just to clear any doubts about balance sheet - Comfortable capitalization levels (38.59% as on Mar-14, as against 15% prescribed by the RBI), Loan portfolio can double if they follow policy prescribed by RBI

I am actually quite happy with this platform, the moderators have to be congratulated for making this such a pleasant experience, everything works seamlessly

Hat Tip

1 Like

Thanks a ton for quick yet detailed reply. :smile:

This really makes it mouth watering investment which can get re-rated if market recognizes.

1 Like

Trading liquidity has gone up over the last week, where 500 shares used to be traded, now even volumes of 10000 have become common, sooner of later the market should recognize it, but I repeat what I said - I think this is a small plant which can grow for a long time, I am willing to be very patient in this

If holding good companies with good managements with good numbers at 25-85 PE for multi year periods is the right way to create wealth, then holding good companies with good managements with good numbers at 7 PE for multi year periods cannot be the wrong way to create wealth :grinning:



Manav good analysis. I was checking the Cash Flow for Shalibhadra can you throw some light on the same.


What kind of light are you looking for :grin:

The only value add from the Cash Flow statement is that the company pays full taxes (ranging from 32% to 38%) !

Tax rate in % -
2014 - (37.24)
2013 - (36.91)
2012 - (36.79)
2011 - (38.95)
2010 - (31.88)
2009 - (36.75)
2008 - (35.19)

Hope this helps

1 Like


Good analysis. I also have been looking at this company.
Let me now be a Devil’s advocate

  1. They seem to be enjoying a regional moat. This seems to be temporary the time 2 wheeler finance companies like Bajaj start looking seriously at rural markets.they would not ignore it any more.

  2. With time, Bank access to rural areas will improve. When villagers see the difference in interest costs they would be tempted to shift to lower interest loans.

  3. Internet penetration would improve leading to better reach of the nbfcs which currently are unable to reach remote villages. This would eat into Shalibhadra’s market share.

Hence Shalibhadra’ seems to be enjoying a temporary advantage which would be neutralised by bigger and more efficient NBFCs over 5 years.


Manav good analysis. Thanks for sharing it.
Thanks to alok for taking the DA role. Some more points to consider.

  • This high net interest margin is unsustainable over the long run. The market may not be rate sensitive for now but people will prefer cheaper loan from the competitors when it arrives. The rural focus theme has already taken ground among the NBFCs(visible here in the south), it would be wrong to think that no major player will enter this segment in the near future.

  • Small loans can be both a boon or bane . Repco services 50,000 customers offering low ticket housing loans (~15 lakh). Shalibhadra services a similar number of customers. Both operate with frugal operating costs. But shalibhadra because of its ultra small loan size must have a high NIM to be profitable. If the NIM gets squeezed bcoz of even a couple of cheaper competitors its current set up gets eroded.

  • The company AR claims its “dominance” in this segment. If its covering only 1.2% of the two states how does it get that tag?? Its hard to think that people who own a house in these two states won’t be serviced by any other finance company for a two wheeler !

  • Its really a good company considering its 10 year history. But is it mispriced??
    After 10years they have serviced a loan book of only 42 crores in 2014( ICRA) ,P/Bv of 1.3, in a competitive NBFC cut throat two wheeler sector , no big financial backing to fall back on at bad times. Is it not aptly valued already?

    Bull market bias : Are we not trying to extrapolate the successes of HFC’s in a similar segment here? It may get a higher PE if this bull market continues, but it would be severely punished if any negative comes up about the company.

At PE of 7 it has a margin of safety with risks factored in and its not mispriced IMHO.

1 Like

Thanks for the questions Alok

Will try to answer them one by one to the best of my abilities

They seem to be enjoying a regional moat. This seems to be temporary the time 2 wheeler finance companies like Bajaj start looking seriously at rural markets.they would not ignore it any more.
This is a very big market that they are addressing, Companies like Arman Financial have become one of the top-five players in two-wheeler and three-wheeler financing in Ahmedabad region and boast of a 2 and 3 wheeler loan portfolio of 40-45 crores just based on such a small area. When will Bajaj Finance start looking at rural markets? They have not done so till now when rural demand was very strong, this is not a easy business to carry out consistently (by consistently I mean adhereing to strong collateral and risk management practices)

With time, Bank access to rural areas will improve. When villagers see the difference in interest costs they would be tempted to shift to lower interest loans.
I can apply the same logic to Housing Finance companies and say that they should not have grown like they grew over the last 10-15 years, because banks would have entered into unbanked areas and offered lower interest rates, did not happen there, I think it would be a mistake to overestimate the penetration levels of organized financing in rural and semi rural areas, Shalibhadra’s competition is not other organized lenders but money lenders, in the last 5 years the number of branches increased by 4-6 but the loan book doubled, what does that tell us about demand :grinning:

Internet penetration would improve leading to better reach of the nbfcs which currently are unable to reach remote villages. This would eat into Shalibhadra’s market share.
I think I answered this in the above point !

The questions you raised are all questions you could have asked of any class of NBFCs even 5 years back, we know now what happened with the benefit of hindsight. I want to repeat one point, that Niche micro lending done smartly has immense growth potential, I still think this company has set itself up nicely for the future

1 Like

Themes take a long time to play out, I agree with you, as Shalibhadra scales up much more the NIM might come down a little, but I see the last 4-5 years, loan book doubled, but NIM remained constant

All the points raised as Devil Advocates are big picture with less ground level insights

I can find 20 big picture ways in which a country wide theme will play out or will not play out, but unless I understand ground level micro, my insights will be flawed

Using your logic, Repco would never have grown because -
It has high NIMs with all this big competition with cheaper rates

Loan book is 48 crores now, you can maybe look at their starting point, before deciding where they have reached

No Financial Backing point - They have a great undercapitalized balance sheet and a new rating from ICRA, which type of financial backing are you referring to

Please refrain from giving me gyaan on bull market bias - I am not talking about this company at 30 PE, I am talking about this company at 7 PE, as long as the price reflects very conservative assumptions about the future, I can happily sleep at night :smile:

I think they have untapped sales generating power in their 18 branches, forget about the future branch expansion, they doubled their loan portfolio when number of branches increased by 4-5

I think the difference in our viewpoints in that you would prefer a 80% sure thing at 40 PE while I am happy with a 70% sure thing at 7 PE


Very mispriced - Meaning it should command a higher PE. These were your comments manav.

I would hang onto those words

If you tell me about a company without telling me the name and say that it has -

20-25% growth rate over the last 5 years + Uninterrupted 10 year dividend track record with occasional increases + Prudent business practices as defined by a ratings agency + Full tax payment ( this company has paid almost 10 crores of tax over the last 9 years ) + A Overcapitalized Balance Sheet + Enough headroom for growth

and then asked me what multiple would I assign to such a company, I would give you a number between 12 to 15 PE

I am not even considering Management Quality here which to me is a very important positive and “lends” a lot of comfort to me, pun intended :grin:

I want my cake and I want to eat it too, this has a combo of a cheap PE multiple based on combination of numbers, company policies and management which I think should be higher, plus future potential

We can make money in rerating and future business growth, why would I not call it extremely mispriced !


Another company that is in similar space - NBFC granting small loans - is Capital Trust Ltd. It has today come out with stellar results. It’s operations are largely around NCR. Not cheap on p/e but may look so in future if growth continues, which looks likely. Will work on it and update.

Ishank, I did not know this had become a generic NBFC thread :blush:

@manavbansal Mentioned about it in the discussion context. Dont worry- will open a new thread for further updates.

I had interacted with a Finance Manager of the company a while back, if anybody wants to talk to the company the phone numbers are - 022-24322993 and 022-24322994

When I had invested I had figured out that these would not be very polished, english speaking people, I was proved right

Q) You have paid dividends for 10 years straight, as investors we are happy
A) If a investor invests he expects return, our Bosses have not taken a single rupee from the company as salary since 1995, dividend is important for them because it is like a salary

Q) Is the rural demand problem affecting you
A) If we work hard we will get good results, in the states we are in, irrespective of monsoon what we have seen is if we work hard, we get good growth, this business requires blood and sweat and as long as we are ready for this kind of hard work, we will grow, we aim high and then work hard

Q) Is your business seasonal
A) Diwali time is important, rest depends on us

Q) Why did it take so long to get a Rating
A) Our promoters have financed this business, but now we have reached a scale that we need professional help, ratings are good for a company of our size, it is cheaper to borrow, loans we can get easily, but if we can save “1 taka or 2 taka” it goes directly into profits

Q) Why is your stock cheap
A) Nobody knows about us, almost 90% of the stock is tied up, shareholders have been with us for long, we want to grow much bigger before we worry about stock price, if we do well, the stock price will go higher (He did not know his stock price :flushed: )

Q) Why do you pay so much of tax
A) If we earn, we will have to pay, the exact words were - kamayenge to dena padega, his perspective was we have minimal tax related issues and cases with the Govt considering how much tax we have paid for the last 10 years

All in all, it was a long conversation with words like mehnat and bhaag daud used so many times I lost count, the gentleman talking to me was not polished

He had a lot of respect for his Chairman and MD and said they work the hardest !

He mentioned they had a target of 60 crore loan book for FY 2016, only number he shared


My first post on this forum. To add it is important to note that in addition to the 15 cr networth as of March 2015; there is a debt of 20cr on the books, of which 14 cr is actually contributed by the promoters. Also in addition, the interest on such debt is again reploughed back into the company [ soucre: ICRA]. It is also mentioned in the ICRA report that the promoters intend to convert part of these loans into equity. If that happens (and assuming its non dilutive based on CMP to existing shareholders), the Company can raise apx 150 cr of loans (assumed at 5 times 30 cr networth) theoretically to ramp up the growth.

I am still trying to get comfortable around the fact that they haven’t grown a lot in absolute terms (only 22 cr increment in loan book since 2009-10 to 40 cr in 2014). So do not know how much hunger the management has for growth.

Hi, welcome to the forum

Why do you say management has no hunger for growth?

From 2009-2010 to 2015 - Loan Book increased from 19 crores to 48 crores

From 2009-2010 to 2014 - Number of Live contracts increased from 18000 to 34000, if I build in 2015 numbers into this figure with 20 % growth that would make existing number of live contracts as almost 41000

In the last 5 years, Topline tripled, PBT also tripled. dividend per share increased from 70 paise to 1 rupee

The company has faced teething issues in the last 3 years with getting all physical records digitized as well as implementing database softwares so that all branches are connected and real time updates are possible, but this is over now according to them

The management first started cribbing about not being able to increase number of branches in 2012 AR where they said that we need comprehensive software to handle all this complexity, they mentioned that a SW was being developed and the company would start implementing it in 6 months, in the 2014 AR they mentioned they had almost solved this issue

From 2012 to 2014, their loan book grew only from 30 to 39 crores, but in 2015 it jumped to 48 crores, it seems from the face of it that they solved this problem just looking at the jump in growth rate

In my experience I have seen a lot of lending companies grow like crazy before getting all systems and processes in place needed for prudent risk policies, because it is just so easy to grow and there is a lot of untapped demand and niches even in the smaller loans space, this normally does not end well

I agree with you on the scaling up part, they have a lot of balance sheet strength for doing so