India MicroFinance: Rising From The Ashes - Karvy Online

0 downloads 158 Views 427KB Size Report
Sep 7, 2015 - Micro Finance industry in India has returned to the growth phase in terms ..... services, realty services,
Sep 07, 2015 SKS MicroFinance Ltd Sep 07, 2015

MicroFinance

India MicroFinance: Rising From The Ashes India Research - Stock Broking

For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters

No. of clients (Cr)

No. of employees (No.)

% Chg (Y/Y)

54591

55.0

3.1

29.0

40138

61.0

80097

No. of branches (No.)

Source: MFIN Micrometer, Karvy Research

20.0

10553

8.0

Exhibit: MFI Industry Gross Loan Portfolio (Rs. Cr) 40138

40400 30300

17407

24862

20200

2012

2013

10100 0

2014

2015

Source: MFIN Micrometer, Karvy Research

Exhibit: MFI Industry Gross Loan Portfolio % Kerala 4%

Other States 14%

Odisha 5%

Tamil Nadu 14%

West Bengal 15%

Assam 5%

Karnataka 11%

MP 6%

UP 9%

Bihar 7%

Maharastra 10%

Source: MFIN Micrometer, Karvy Research

Exhibit: Loans amount disbursed (Rs. Cr) 60000 48000

54591

Stellar growth in the last two years: The microfinance industry has recorded a growth of 55% in new loan disbursements to Rs 54, 591 cr which resulted in a 61% growth in total Gross Loan Portfolio to Rs 40, 138 cr during FY15. The total number of individual borrowers has increased by 29% to 3.1 crore taking the total loan amount disbursed per loan account to Rs 16, 327 for

Gross Loan Portfolio (Rs Cr)

FY15

36000 24000 12000

35118

Stable regulatory regime under RBI post AP MFI Crisis: Micro Finance Institutions are regulated under the NBFC-MFI Directions by RBI that has given guidelines on qualifying assets criteria, asset classification and provisioning, pricing of credit, capital adequacy and fair practices. These guidelines along with other guidelines on quarterly monitoring of priority sector lending (PSL) comprises of Loans to agriculture, Weaker sections, social infrastructure, renewable energy, Micro and Medium Enterprises has brought in more stable regulatory environment also helped the MFI’s to borrow at lower rates from banks. The recent measures like mandatory credit bureau reporting, Pradhan Mantri JanDhan Yojana and setting up of Mudra Bank would help in improving the efficiency of Microfinance players. Regulatory changes like allowing MFI as business correspondants add additional fee based revenue streams for the Microfinance players.

Disbursements (Rs Cr)

23375

Micro Finance industry before and after the AP MFI Crisis: Micro Finance industry in India had witnessed phenomenal growth from the year 2000 till the crisis in AP during 2010.This was achieved by providing loans for the huge borrower base at the bottom of the pyramid that were previously relying on private money lenders who used to charge exorbitant interest rates. But, the high double digit net interest margins in the Micro Finance business had attracted a lot of players who were scrambling for market share by giving loans to the same set of borrowers who already borrowed from other MFI’s in the absence of a regulatory frame work. This led to the borrowers paying high interest rates for non-income generating activities. The borrowers started to complain about the same at the time of repayment, which was used by local politicians to gain mileage and snowballed towards the issuance of ordinance regulating MFI activities in the state of Andhra Pradesh in CY2010, after which majority of the MFI’s in AP went for corporate debt restructuring package. The MicroFinance business which was high flying with very high growth rates, plum margins, investments by top tier investors and PE players hit the rock bottom and recovered after the RBI issued guidelines in CY2011. RBI imposed cap on net interest margins, multiple lending and indebtedness providing a ray of hope for the segment also attracting the investors attention.

Key Indicators

16813

Micro Finance industry in India has returned to the growth phase in terms of Gross Loan Portfolio value on the back of a stable net interest margin of over 10%, total number of borrowers, branch network in the light of stable regulatory framework after going through a crisis in the last few years.

Exhibit: India MicroFinance Industry

20741

India MicroFinance: An Overview

Techno Funda View

0 FY12

FY13

FY14

FY15

Source: MFIN Micrometer, Karvy Research

1

Sep 07, 2015 SKS MicroFinance Ltd

Political risk continue to be a high impact risk: While the above factors provide an opportunity, Micro Finance sector continues to be politically sensitive as local politicians tend to gain mileage during challenging times. However, this risk could be lowered significantly if the MFI can convert itself into a small finance bank as it is regulated by RBI with negligible interference from the states. Moreover, small finance bank route would open up other avenues for sourcing low cost funds. In our view, SKS Micro, the only listed Microfinance company is likely to benefit from the stable regulatory environment along with its application for small finance bank it is in the right track of sustainable long term growth.

31 19

24 21

FY14

FY15

Source: MFIN Micrometer, Karvy Research

Exhibit: Loans accounts disbursed (No Mn) 33

35

24

25

15

FY12

FY13

5 FY14

FY15

Source: MFIN Micrometer, Karvy Research

Exhibit: Employees (No)

40400

80097

60600

66959

80800

20200 0 FY12

FY13

FY14

FY15

Source: MFIN Micrometer, Karvy Research

Exhibit: Sum Insured (Rs. Cr) 70000 60000

67051

Robust processes and risk management systems are the way to go: Another important factor in maintaining asset quality and profitability is the operational efficiency. As the microfinance business involves small ticket loans for large number of borrowers, cost of due diligence and servicing per borrower is a key differentiating factor to monitor. This includes the processes and systems on various platforms to check the borrower credit score and repayment potential. Regular monitoring of exposure at various levels like branch, district and state would help in better risk management and allow them to avoid concentration of risk to any particular geographical area (a lesson learnt during AP MFI crisis).

FY13

50000 40000

50145

Margin cap to drive healthy competition: Margin cap of 10% would increase the healthy competition in terms of survival of the more efficient and stronger players. Those who are able to raise money at relatively lower interest rates would be in a position to provide loans at lower rates without sacrificing the net interest margins and gaining market share from the inefficient and financially weak players. Thus, a strong balance sheet, good credit rating would help in mobilizing money at competitive rates.

FY12

5

18

Stable regulatory environment to aid growth: In a stable regulatory environment, the sector is expected to witness huge growth opportunities in terms of volume growth in addressable rural households with income up to Rs 1,00,000 and in non-rural with income up to Rs 1,60,000. Value growth would come in the form of bigger ticket loans of up to Rs 60, 000 for first loan cycle and up to Rs 1, 00, 000 in the subsequent cycle as well as increase in indebtedness up to Rs 1, 00, 000. It also provides opportunities for loans in income and non-income generating activities.

15

59240

Going forward, Microfinance sector is likely to present huge opportunities along with the challenges of the same degree making it one among the high risk-high reward businesses.

25

30000 20000 10000

29298

India Microfinance: Our View

35

17

Major players and geographical areas: Among the Micro Finance Institutions (MFI) top five accounted for 57% of the gross loan portfolio, with Bandhan (Rs 9,530 cr), SKS (Rs 4,170 cr), Janalakshmi (Rs 3,773 cr), Ujjivan (Rs 3,274 cr) and Equitas (Rs 2,144 cr) during FY15. MFI gross loan portfolio exposure to the top five states is as follows West Bengal (15%), Tamil Nadu (14%), Karnataka (11%), Maharshtra (10%), UP (9%).

Exhibit: Clients (No. Mn)

68252

FY15. At the same time the total number of branches has increased by 8% to 10,553 and employed around 80097 people during FY15.

0 FY13

FY14

FY15

Source: MFIN Micrometer, Karvy Research

2

Sep 07, 2015 SKS MicroFinance Ltd

SKS MicroFinance Ltd: Resilient MFI Marching Towards Small Finance Bank

Recommendation (Rs.) CMP

448

SKS Micro Finance is among the largest Micro Finance Institutions in India in terms of Gross Loan Portfolio (Rs 4, 170 cr), Number of Members (64 lakh) and Number of Branches (1268). SKS provides micro finance (unsecured loans with small ticket size) for income generating activities and other basic financial services to economically weaker individuals (who are members / borrowers) in rural areas in India. SKS follows a village centric group lending model that gives unsecured loans which works on social collateral. SKS operates in 17 states (314 districts) in India through 1268 branches and 9698 employees serving 64 lakh members. SKS was among the worst hit during AP MFI crisis, but managed to emerge stronger from the crisis with its diversification and prudent risk management strategies.

Target Price

Fast growing player in the lucrative NBFC MFI segment: SKS Micro had swiftly recovered from the AP MFI crisis and managed to grow at a healthy pace in all parameters during FY13-15. Gross loan portfolio (ex-AP & TS) grew by 47% (Y/Y) and at a CAGR of 46.7% during FY12-15 to Rs 4171 cr during FY15. Healthy growth in loan disbursement along with lower slippages had resulted in 47% increase in gross revenue to Rs 803 cr and 168% increase in PAT to Rs 188 cr during FY15. SKS is expected to maintain healthy growth in the next couple of years amid clear regulatory framework.

Shareholding Pattern (%)

Net Interest Margins of over 10% driving profitability: SKS mobilizes debt at competitive rates from diversified sources including the priority sector lending route from banks. At the same time SKS passes the benefit of low cost of funds onto borrowers in the form of reduction in interest rates yet maintains the NIM of over 10%. This strategy helps in gaining market share and driving profitability. Lowest NPA’s post AP crisis indicates robust risk management: Post AP MFI crisis, SKS had significantly diversified its geographical risk by aggressively expanding in other states and ensuring lower concentration of risk. It also ensured that its loan ticket size is lower than the industry average while its repayment cycles are shorter than the rivals. Diversification and prudence in operations helped to tide over the crisis and resulted in recovery of 99.8% (ex-AP & TS) during FY15. Strong contender for a Small Finance Bank Licence: SKS displayed resilience post the AP MFI crisis. It is driven by strong management that helped SKS emerge stronger and applied for a licence to set up a Small Finance Bank. With its track record and wide coverage it is a strong contender, any positive development in this regard would strengthen our opinion that it is on a long term sustainable growth track.

600

Upside (%)

34

Stock Information Mkt Cap (Rs.mn/US$ mn)

56650 / 848

3M Avg. daily volume (mn)

1.3

52-wk High/Low (Rs.)

590 / 278

Beta (x)

1.0

Sensex/Nifty

24888 / 7559

O/S Shares(mn)

126.6

Face Value (Rs.)

10.0

Promoters

9.2

FIIs

42.7

Others

29.6

DIIs

18.4

Stock Performance (%) Absolute

Relative to Sensex

1M

3M

6M

12M

(19)

1

(2)

38

(8)

9

15

50

Source: Bloomberg

Relative Performance* 200 160 120 80 Sep-14

Dec-14

Mar-15

SKSMICRO

Jun-15

Sep-15

Sensex

Source: Bloomberg; *Index 100

Outlook & Valuations SKS Micro is expected to benefit from the rebound in the Microfinance sector growth in the light of regulatory clarity post the AP MFI crisis. It’s well diversified presence, credit rating, strengthened balance sheet, track record in handling the crisis, efforts to get small finance banking licence augurs well in the long term. At CMP Rs 448, SKS trades at 15x FY17E EPS and we value at 20x FY17E EPS and recommend a “BUY” for a target of Rs 600 in the next 9-12 months.

Key Risks yyPolitical risk. yyStiff competition. yyDelay in getting small finance bank licence.

Contacts Rajendra Prasad M 040 - 3321 6301

[email protected] Joyjit Sinha

040 - 3321 6275

[email protected] 3

Sep 07, 2015 SKS MicroFinance Ltd

Financials Exhibit: Revenue (Rs. Mn) & Growth (%)

Operating Expenses (Inc provisions W/o) EBIDTA

Growth (%)

Depreciation & Amortization Other Income

3322

(23.8)

5190

56.2

FY15 7240

39.5

15855

5005

2567

3259

(11498)

(1684)

2623

3980

100

64

366

204

(-) to (+) 41

258

8000 6000 4000 2000

-23.8%

-40% FY12

46

FY13

FY14

FY15

Revenue (Rs. Mn)

Growth (%)

Source: Company, Karvy Research

(1544)

2841

4726

PBT

(13236)

(2971)

699

1936

Exhibit: PAT (Rs. Mn) & Margins (%)

Adjusted PAT

(13604)

(2971)

1877

2000

Source: Company, Karvy Research

(-) to (+) 699

(-) to (+)

59.0

-10000

Y/E Mar (Rs. Mn)

FY12

FY13

FY14

FY15

Cash & Cash Equivalent

6692

8606

6397

15368

Loans & Advances

9498

15654

17528

29584

Gross Block

558

394

391

406

Miscellaneous

821

738

908

1897

Investments Net Block

Total Assets

Current Liabilities & Provisions Debt

Other Liabilities Total Liabilities

Shareholders Equity Reserves & Surplus Total Networth

Total Networth & Liabilities Source: Company, Karvy Research

2 2

206

2 2

113

26 2

112

102

25115

24972

46987

2846

2656

3002

10572

435

15922

2633

15516

1862

25823

3578

2822

3510

9202

17221

3904

25115

4592

24972

FY14

FY15 Margins (%)

Exhibit: Networth (Rs. Mn) 12000

10465 46987

10465

9000 6000

0

36523

4347

PAT

1263

20380

1082

-350

FY13

Source: Company, Karvy Research

3000

21211

1082

-312 FY12

127

12874

769

-150

2

17221

9594

-50

-250

-14000

34

50

26

-89

-6000

Exhibit: Balance Sheet

Sundry Debtors

-2000

13

699

0.0

2790

-2971

Growth (%)

368

2142

-13604

Tax

1427

20%

-20%

(11232)

2004

40%

0%

EBIT

Interest Expenses

60%

39.5%

0

51.7 791

56.2%

7240

4357

FY14

1877

Growth (%)

FY13

5190

Revenues

FY12

3322

Y/E Mar (Rs. Mn)

4357

Exhibit: Income Statement

4347

FY12

3904

4592

FY13 FY14 Networth (Rs. Mn)

FY15

Source: Company, Karvy Research

Exhibit: Total Assets (Rs.) 50000

46987

40000 25115

30000 20000

24972

17221

10000 FY12

FY13 FY14 Total Assets

FY15

Source: Company, Karvy Research

4

Sep 07, 2015 SKS MicroFinance Ltd

Technical View on SKS SKS Micro has been in a steady uptrend in the last two years; the stock has surged from just over Rs.100 levels in the month of August 2013 to high of 590 levels during the month of July this year. Previously, the stock has witnessed sharp selloff ever since it listed in the month of August 2010; the stock plunged after making high of 1491 levels in the month of October 2010 to almost low of 54 levels in the month of May 2012. Thereafter, the stock has bottomed out around the 55 levels and witnessed strong bounce back with two consecutive highest ever monthly volumes during July and August 2012.

Also, if we draw the retracement of the fall in the stock from lifetime to life time lows (1491 to 54), the stock retracted 23.6% which is pegged around 394 levels and just fell short of 38.2% which is pegged 603 as against its recent high was around 590 mark. Thus, the long term chart still indicates the recent sharp move in the stock is bear market rally and until the stock sure above the 50% of retracement which is around 770 levels we expect the long term bear term to continue. However, if we cut the chart into small time frame, we have seen the stock has multiplied almost 12 times in just over 2 years time frame. Recently, the stock has seen sharp correction in the stock from its 52 week highs; the stock has corrected almost 25% from its 52-week high in the last two months. However, the volumes during the fall is the just below its average suggest the fall just due to profit taking. Currently the stock is hovering around its 200 Day EMA which is pegged near its current market price of around 445.

On the weekly chart, the stock moving in the upward channel during the last 2 years, for which the stock has given a false breakout in the month of July this years and entered back into the same channel again. The lower end of the channel is currently is pegged around 400 levels which also coincide with the levels of 23.6% retracement of major fall in the stock mentioned above. Exhibit: SKS Technical Chart

Source: Spider-IRIS, Karvy Research

Overall, the stock is still in the bear market rally on the longer term chart. We might conclude the stock into bull market once it cross over 50% of its major crash which is pegged at 770 levels. However, looking at current scenario, the stock is near its long term support of 200 Day EMA at 445 levels and also near to its lower end of upward channel at 400 levels. The stock is also near the strong support of 23.6% retracement levels of the major fall around 390 levels. We expect the stock to spend some time in the range of 400-500 levels in the coming month before the stock head to make fresh 52-weeks highs. Thus, we recommend accumulating the stock at current levels and any further declines from current levels for targets of 600 and higher in the next 9-12 months with a stop loss placed below 350 levels.

5

Sep 07, 2015 SKS MicroFinance Ltd Stock Ratings Buy

:

Sell

:

Hold

:

Absolute Returns > 15%

5-15%