Prefer Satin Creditcare: Prakash Diwan

Prakash Diwan of prakashdiwan.in told CNBC-TV18, "Given the kind of mayhem that we see in midcaps, the first rider is that people need to understand the stock and maybe buy it at decent levels, lower levels if the thing gets available, but only with a long-term orientation, not necessarily on day one. Satin Creditcare Network is basically the largest microfinance institution (MFI) in the northern Indian market and it will be the fifth or sixth largest on a countrywide basis. It got listed in 1996 but only on regional exchanges. It is just last year, in October, that they got listed on the NSE and the BSE. So, you do not really have a history in terms of what people will know about. But, financially the company has got a stellar history, the operational history is very rich. It has a presence now across 13 states." "When you look at the states, this are all underserviced states of the North and the North-East. You are not talking about the rich Andhra Pradesh, Karnataka belt which has MFI as a very established business culture. This is in Uttar Pradesh, Uttarakhand. Jammu and Kashmir and Haryana where nobody has heard of. They focus only on shopkeepers primarily and women shopkeepers. Women who handle tea stalls, tailoring shops and things like that. They have been very successful. In fact, they were the pioneers to do this collection of loans on a daily basis way back, HP Singh who was the promoter actually pioneered this. He is an NBFC stalwart of sorts. The company has got five rounds of funding from private equity (PE) funds," he said. "Still the promoter stake is one of the highest in the business at 36 percent which is very encouraging. The best part what I liked about this company’s profile is that they have become business correspondents for two banks, one is Ratnakar, the other is Yes Bank and also, for Reliance Capital. They have also started doing loan against property in the same segment. So, the revenue streams are much more than what other MFIs have and it is diversified, so it is not dependant on that and after the Andhra Pradesh crisis, this is the first company to have got funding. They also offered profitable exit to the first PE investor, so that track record is already established. Care has given them an MF1 rating and a BBB+ rating on the paper. The important thing is after Mudra Bank was set up which came through for the MFI business, they were the first to have received credit. So, it does tell a lot about the quality of business and the book that they have." "If you go into micro parameters of this business, it is very encouraging to see the kind of metrics that they have achieved. They have already done about close to Rs 240 crore of revenue this six months. I would believe given the kind of management commentary that they would expect to close at about Rs 450 crore. They have been growing at about 50 percent compounded annual growth rate (CAGR) over the last four years on revenue itself. So, with an EPS of Rs 18 and maybe Rs 27 next year, it is available at just 20 price-earnings ratio. 20 PE would be my target, but look at SKS Microfinance which is another listed player and it is a lot of rich valuation that you are ready to pay. It is just that this stock has not got discovered.""The current PE on a trailing basis would be about less than 20. So, it is not rich even right now. Even if I maintain the same PE, it adds up to about Rs 550 next year. But you will have to be patient with this business and luckily, it is China insulated, it is yuan insulated and whatever you want to call it, so it is decent enough as a pocket also."