Why are experts, broking firms bullish on SKS Microfinance?

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After looking at the response to the QIBs' portion of SKS Microfinance's initial public offering (IPO), which will close on Monday, experts as well as brokerage houses seem quite bullish.

The company has offered 1,67,91,579 equity shares through this IPO. The issue has been subscribed 10.51 times so far, as per data on the NSE website.

It is the first microfinance company tapping capital market. While explaining about the concept, Vikram Akula, Founder and Chairman of SKS Microfinance said, "In microfinance, we are looking to provide financial services to the poor. But the ultimate mission of doing that is to help them have the financials tools to slowly earn income and step-by-step get out of poverty. In that sense, many of the matrixes in the financial services do not necessarily apply to this type of business."

In a 12-year history, he said he has seen net NPAs of 0.3% which is less than half a percent in net NPAs after giving collateral free, unsecured loans to the poor. "The lesson here is that till now we have not given the poor of our country a chance. We have not given them the due respect that they earn. The way in which we have done so at SKS Microfinance shows that if you do put faith in the poor they are extraordinarily hard working, resilient, entrepreneurial, and they pay back Rs 15,000 crore with a 99.5% repayment rate."

On why Kotak Mahindra choose to be the book running lead manager of the issue, Uday Kotak, Executive Vice-Chairman and Managing Director of Kotak Mahindra Bank said, "We believe microfinance is a new emerging sector in India and we are delighted to get that sector introduced to the market with the market leader in that sector, which is SKS Microfinance. I believe what SKS and the sector is demonstrating is what is good for the poor and can also be profitable. This is a very important aspect which SKS Microfinance has demonstrated, if you look at its performance over the last few years. There is a huge amount of poor in this country and here is a business model which serves the social objective and is a profitable business."

On pure economics of business and fundamentals, Investment Advisor, SP Tulsian says the issue is looking expensive, but still may evoke good response, which may result in listing gains. "Those who are looking to go for it are advised to do so at the upper band, as otherwise they may get left out," he said.

Manish Bhatt of Prabhudas Lilladher says issue looks good. He advised subscribing with medium to long term view.

Eight out of nine brokerage houses have recommended the issue for subscription.

The issue has received bids for more than 14.47 crore equity shares as against remaining issue size of 1,37,69,095 equity shares (exluding anchor investors' portion). The company has already received a commitment for Rs 297.71 crore from anchor investors (which are 36 investors) as against allocation of 30,22,484 equity shares at Rs 985, at higher end of price band of Rs 850-985 per equity share. Even qualified institutional investors' portion, which closed on July 30th, got subscribed 20.38 times.

SKS will receive Rs 733.36 crore (calculated at Rs 985 per share) as against fresh issue of 74,45,323 equity shares and the balance Rs 920.61 crore as against an offer for sale of 93,46,256 equity shares by selling shareholders. A discount of Rs 50 per equity share is being offered to applicants in the retail category.