Satin Creditcare Network rights issue: Should you participate?

Experts feel the issue is decently priced but they are mixed in their opinion while advising for subscription.

"Investors can subscribe to the issue as the company is trading at a very lucrative price. Its PE is at 3.36 which is low compared to other NBFCs. Issue is placed at a very decent price. There is a scope of appreciation in valuations and stock might give good returns in mid to long term," Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.

Fundamentally, the company has seen healthy growth in its assets under management (AUM) which stood at Rs 8,174 crore in FY20. Satin Creditcare reported net profit of Rs 155 crore in 2019-20, down 23 percent from Rs 201 crore in the year-ago period.

Also read - Satin Creditcare Network rights issue to open on August 12; 10 key things to know

The stock corrected sharply in the last one year as well as year-to-date (2020), down 72 percent and 64 percent respectively. The major reason is the lockdown due to COVID-19 which stalled their day-to-day activities including collection of amount.

Satin Creditcare is a small cap NBFC-MFI company serving the under-privileged segments of the society and remained focused on driving financial inclusion. With Pan India presence, Satin has been growing distribution network to service the unique needs of over 3.6 mn clients on consolidated basis.

Prashanth Tapse, AVP Research at Mehta Equities also feels the rights issue offer is decently priced at a discount of around 17 percent to August 10's price, but he is cautious on Satin Creditcare business prospects due to low promoter holding (30.19 percent as of June 2020), higher provisions in the wake of COVID-19 and expected rise in gross non-performing assets & net non-performing assets (NPA) in coming quarter's earnings.

In general he believes promoters with low shareholding and share pledge in the company may find it difficult to build confidence in the investor's community. Hence considering basic parameters, he advised existing shareholders/investors to sell Rights Entitlement (RE) shares offered in the ratio of 48:125.

Participants have to make a payment of Rs 15 per rights equity share (i.e.25 percent of issue price) at the time of submitting application by August 26, and the rest Rs 45 per rights equity share will be paid later (for which one or more subsequent calls as may be determined by the board/committee of the board, from time to time).

Company is going to use issue proceeds for augmenting capital base to meet future capital requirements and funding requirements for growth of the business and operations (over Rs 89 crore); and general corporate purposes.

Promoters said they would fully subscribe to the extent of their Rights Entitlement and did not intend to renounce such rights, except to the extent of renunciation within the Promoter and Promoter Group. Also in the event of any under-subscription of the issue, they will subscribe to additional rights equity shares in the issue.

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