Will be in the black in Q3: SKS Micro

Dilli Raj, CFO, SKS Microfinance, in an interview with CNBC-TV18, explains that the company will be in the black by the third quarter. Raj also adds that the subscribers of the IPO issued by the company are primarily foreign institutional investors with some participation from domestic investors.

Below is an edited transcript of the interview on CNBC-TV18. Q: Can you tell us the about nature of the investors? What is the exact equity dilution now?
A: We opened at  Rs 165 crore and the issue was subscribed. We had applications for Rs 230 crore and decided to retain the subscription. In addition, we are also completing a private placement for Rs 33.5 crore with WestBridge, who is an existing investor.
So the total capital that's employed in the company is Rs 265 crore. So looking at present capitalisation, it would mean a dilution of 30%. Q: And therefore the capital adequacy would be?
A: The present capital adequacy is 33% and with this IPO, it goes to 48%. But the idea is we are at a debt-equity of 2.3 times. So the very idea of this exercise was to bring in growth capital and leverage further. Q: How many of your investors are from the domestic sector and how many from overseas?
A: I can give you the details only on Thursday when the allotment will happen. But just to give you an inkling, the subscribers are primarily foreign institutional investors with some domestic participation. We have already raised the FII limit from 24% to 74% for which we have received RBI approval. Q: You issued a profit warning some time ago. For this quarter, there are expectations of an operational loss of around Rs 50 crore as well. What do you expect?
A: We do not normally announce guidance, but we have decided to do it this quarter because we were in a capital-raising mode. So we thought it would be a prudent norm to give guidance.
We plan to stick to the guidance of a Rs 50-crore loss for Q1. It is primarily because we had liquidity of about Rs 690 crore at the end of FY12 which took time to be converted into credit assets.
So we ended Q1 with Rs 400 crore in cash and waited for this opportunity to raise capital. Our aim is to act on the non-volatile component of the fund-segment when there is certainty that the confidence of those who grant credit has been reinforced. Q: What about the bottom-line? What sort of losses are you expecting on the bottom-line? Would the loss be over Rs 300 crore as in Q4?
A: No. I think it will be Rs 50 crore. Q: What about thereafter? If I remember your guidance for the rest of the year, you were a little unsure of returning into the black. Would you face a loss every quarter or do you think you can pull off a turnaround sometime in FY13?
A: Yes, and that's what we said in our precautionary notice while raising capital. We had to work on that with warranted caution and that's exactly what we did.
Our break-even point in the outstanding portfolios and the outstanding of the non-AP portfolio is Rs 1,600 crore - Rs 1,800 crore. We were at Rs 1,320 crore as on March 31 2012 .We have now raised Rs 265 crore and I think we can bridge the outstanding level of Rs 1,800 crore in Q2 itself. Q: So Q3, you will be off the red?
A: Absolutely.