CRISIL revises S E Investments` fair value to Rs 209

S. E. Investments Ltd’s (SEIL’s) Q4FY12 results were in line with CRISIL Research’s expectations. Although net interest income grew q-o-q, profits declined. The bad debt writeoffs increased q-o-q on account of weak environment and higher seasoning of loan book. Disbursements continued to grow q-o-q. The company has adjusted the financials to reflect the demerger of the wind power business. We maintain our fundamental grade of 2/5, indicating that SEIL’s fundamentals are moderate compared to other listed securities.

Q4FY12 standalone result analysis
• Disbursements increased 18.9% q-o-q to Rs 3.04 bn. Assets under management (AUM) totalled Rs 8.8 bn. Consolidated AUM (including microfinance subsidiary Nupur Finvest) was Rs 9.8 bn as on March 31, 2012.

• The company has demerged the wind power business into a separate company S. E. Power Ltd (record date: January 06, 2012). The company has adjusted the Q4FY12 and FY12 financials to reflect the demerger of the wind power business (w.e.f 30-Sep-2010 appointed date). Operating cost of ~Rs 2.1 mn, depreciation of Rs 26.8 mn and interest cost of Rs 4.4 mn for the wind business have been deducted from the respective line items of Q4FY12 financials. Wind business revenue of Rs 69.6 mn has been included in the reported income and the same (“profit of resulting company”) has been deducted from the net profit. As a result, the financials are not strictly comparable with previous periods.

• Net interest income (NII) increased 6.4% q-o-q to Rs 375 mn. While interest income fell by 11.3% q-o-q, the sharper 38.5% fall in interest expense led to growth in NII. The drop in interest income and cost is on account of lower share of high-yield microfinance loans and decline in interest rates. The loan book increased at 4.6% q-o-q compared to 0.8% q-o-q increase in borrowings leading to a slower drop in interest income than interest cost.

• Operating expenses increased 54.4% q-o-q on account of higher selling expenses.

• The bad debt write offs increased 82.7% q-o-q to Rs 42 mn. The write offs (net of recoveries) as % of AUM increased from 0.65% in FY11 to 1.17% in FY12. The overall weak economic environment and seasoning of assets resulted in higher write-offs.

• Net profits (prior to wind division adjustments) declined 4.7% q-o-q primarily on account of higher operating costs and higher provisions. Adjusted net profit (after wind division adjustment) was Rs 103 mn. The adjusted EPS was Rs 2.5.

• The company declared dividend of Rs 1 per share (dividend rate of 10%).

Valuations: Current market price has strong downside
CRISIL Research has used P/B method to value SEIL. We have introduced FY14 estimates and have rolled forward our valuation. Our fair value has been revised from Rs 190 to Rs 209 per share. At the current market price of Rs 319, our valuation grade is 1/5.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"