Why are experts, broking firms bullish on SKS Microfinance?

Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Hem Securities

The company is bringing the issue at price band of Rs 850-985 per share which will turn into P/E multiple of 31-36 at FY10 EPS of Rs 27.10. The company operates in high growth industry and has shown strong financial performance from last few years. The topline as well as bottomline of the company has witnessed the CAGR of more than 100% from FY08 to FY10. The company being one of the leader in Microfinance industry has high growth potential in future. Hence we recommend investor to subscribe the issue.

Way2Wealth

The shares of SKS are priced at price to book value of 3.1x & 3.6x on the lower & upper band of the issue price of its FY11E book value. As it scales up further in the coming period, maintenance of asset quality will be a key issue for the firm. The pricing looks a bit on the steeper side than most of the listed banks & NBFC's, but then the growth scalability, margins & return ratios shown by the firm is superior to any other listed player in this space. SKS is the market leader in its sector. SKS has a strong & proven business model and we expect the supply-demand gap to help strong growth in the coming period for the firm. Historically, we have seen such unique business model and sound earning companies commanding premium in the market. Hence we recommend subscribe to the issue for long term gains.

Mehta Equities

We believe SKS has a strong business visibility with huge market opportunity untapped. We are positive on the business outlook & expect to perform well going forward looking the demand for loans for income-generation predominantly located in rural areas in India. We see huge demand-supply gap in addressable market for microfinance which we expect to continue over the next few years. With the above demand visibility we advise investors to subscribe the issue for the healthy returns on investment on long term basis."

Prabhudas Lilladher

SKS is the first listed pure-play microfinance company and therefore, has no peer comparison. We believe SKS is available at premium valuations, which does capture most of the positives. However, we believe the company commands premium valuations given the fact that 1) it is the only listed player in this space 2) market leader in its business 3) has a proven scalable business model and 4) has strong return ratios and superior asset quality. Moreover, the company should be able to maintain 20-25% RoE in the medium term as it leverages its balance sheet and if it maintains its asset quality as it scales up, the company is likely to trade at premium valuations. We recommend subscribe to the issue, with a medium-to-long term perspective.