Why are experts, broking firms bullish on SKS Microfinance?

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Angel Broking

SKS Microfinance (SKSMF) offers a high quality play on India's vast Rs 2.7lakh crore microfinance opportunity. SKSMF's core strength lies in effective risk management and governance, advanced technology, wide product portfolio, diversified sources of capital and strong pan-India distribution network, all of which have brought down the cost of credit to the poorest to amongst the lowest in the world, unlocking tremendous latent demand. We recommend a subscribe to the issue.

IIFL

SKS Microfinance (SKSMF) is the largest microfinance company in India with loan portfolio of nearly USD 1 billion, 2,000+ branches spread across 19 states and 6.8mn members. Its strengths include pan-India presence, scalable operating model, diversified product revenues and access to various sources of capital. Lending primarily to poor women, the business model involves village centered group lending, thereby ensuring a check on asset quality. The huge demand-supply credit gap and inability of banks to penetrate into unbanked areas have driven the growth of microfinance industry. While valuations appear expensive, the scalable business model, market leadership position and high earnings growth provide comfort. Recommend Subscribe.

Nirmal Bang

SKS has substantial room to grow advances owing to huge financing requirement in rural areas due to lack of lack of access to banks. Opportunity is quite huge in the microfinance industry with an estimated demand of USD 51.4 billion as against total disbursements of USD 4.3 billion (as per intellcaps report). Looking at the huge opportunity in microfinance industry and SKS being the leader, we believe that SKS is well capitalized to take advantage of the same. Though SKS looks costly compared to its peer on historical data, but looking at the possibility of much higher growth, advantage of leadership and early mover in micro finance business, system driven standardized business and scalable business model, we recommend subscribe to the issue.

HDFC Securities

SKSML has issued shares in the past 15 months to private equity investors @ Rs.300 per share. The current issue is priced a bit on the expensive side (31.4-36.3 times its FY10 EPS and 5.77-6.68 times its BV for FY10). Its smaller peer SE Investments has also risen 200% over the past 4-5 months aided by Bonus and split announcements. On a comparative basis with its peer, SKSML does not seem too expensive. However compared to Banks and Finance companies, it seems expensive based on P/E, dividend yield and P/BV basis. On a post issue basis, however the P/BV could come down, mainly due to the premium collected in the issue. Given its size, the present institutional investors, the recent growth and prospects going forward and the fancy towards the sector, the issue could still give some listing gains.