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
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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%