Will SKS Microfinance recover? Is it a good long term buy now?

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by jarmoney, Sep 19, 2015.

  1. jarmoney

    jarmoney New Member

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    Will SKS Microfinance recover from missing out on the small bank and payments bank license? Is it a good long term buy now?

    I can't believe RBI would put the largest MFI at a disadvantage, its borrowers wont get the benefit of low cost of funds.

    How do you forsee this being played out?
     
    Srouta Mukherjee likes this.
  2. Carl Icahn

    Carl Icahn Active Member

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    I read a research report which says that the grant of banking licence to SKS' competitors while denying it to SKS tilts the balance against SKS because it's funding remains expensive. The larger issue is the sustainability of the business model itself. The business is prone to interference from political parties and the government due to the nature of the target audience. So why would one want to mess around with SKS when there are other bank and nbfc stocks available?
     
    Srouta Mukherjee likes this.
  3. Meenakshi Razdan

    Meenakshi Razdan Administrator Staff Member Moderator

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    Hmmm ... SKS did go through an existential crises once before when the Andhra Pradesh Government made it difficult/ impossible to recover loans. It could happen again. There is a detailed report by Religare which highlights these risks in great depth. The report claims that there is a "crises brewing" arising out of intense competition, poor credit checks and rising NPAs. One should read that report before concluding whether it is a good long-term buy or not.
     
  4. RAMA MURTHY SASTRY CHALLA

    RAMA MURTHY SASTRY CHALLA Well-Known Member

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    SKS Microfinance Fails to Get Small Bank License, Stock Sinks 20%

    http://profit.ndtv.com/news/market/...get-small-bank-license-stock-sinks-20-1218934

    New small Finance banks Licenses approved by RBI

    Ujjivan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd and Equitas Holdings Ltd are among the 10 entities. The others are Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.

    Larger financial services firms such as Dewan Housing Finance Ltd, IIFL Holdings Ltd, SKS Microfinance Ltd and UAE Exchange and Financial Services Ltd did not qualify for the licences. No publicly traded entities have been included in the list.

    http://www.livemint.com/Industry/1J...nts-small-banks-licence-to-10-applicants.html

    https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=33164
     
  5. jarmoney

    jarmoney New Member

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    The question is - What were the reasons why SKS didn't get the small bank and payments bank license? Will they eventually get it?

    Microfinance as a sector itself has high NPAs ... thats why the interest rates are so high. Point is this is not new. Whether another AP can happen is a question ... hopefully regulators are there.

    Do you have a link the religare report?
     
  6. RAMA MURTHY SASTRY CHALLA

    RAMA MURTHY SASTRY CHALLA Well-Known Member

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    Dear jarmoney , Don't get panic ....are you holding this stock ?

    This is from Religare Securities online website .... please read this ....

    SKS Microfinance falls over 2% after Morgan Stanley cuts stake

    hares of SKS Microfinance fell over 2 per cent in early trade on Bombay Stock Exchange (BSE) after Morgan Stanley Asia sold 692680 shares in a block deal on Wednesday at 458.65 rupees a share. Morgan Stanley Asia held 5.27 per cent stake in the company as on March quarter according to exchange data.

    Following the development shares of company dipped as much as 2.13 per cent in intra-day trade to Rs. 432.60 apiece on the BSE.

    In a similar trend shares of the company dropped as much as 2.25 per cent to Rs 432.20 a piece on National Stock Exchange.

    Meanwhile the broader benchmark BSE Sensex was trading at 26765.31 up 47.94 points or 0.18 per cent at 11:20 hours.

    Source : http://www.religareonline.com/Marke...cuts stake/456275/05-07-2015/CompanyNews/5982
     
  7. jacobvacha

    jacobvacha New Member

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    This is another classic story for debate
    ie define long term story
    sks micro has been doing wonderfully well over the past 2 years

    but see everyone is in haste to correct their recommendation or to give footnote after the license issued by rbi.
    This points out to the simple fact ( if ego factor eliminated ) that stocks if have given gud returns over a short to medium period ( short for me is 3 m onths and medium is well over 6 months to 9 months... i donot porlong it to justify myself)

    we have seen nestle .. so no stocks can be spared nor nothing like chip red or blue :)

    discount sales is going to happen every 6 months and one can get two way profit by selling at high ie reasonably at gud profit and parking the cash and waiting for a similar situation like what is happening now.. Now it is yuan devaluation.. later it will be something else..

    i have failed with the above theory and successfully correcting my past mistakes.
    This lesson i learnt this month
    a stock which gave me profit of 170% ( ricoh just example ) just holding it .. for what..
    can another 170% be sustained in another 1 yr.. No .. then why not sold it
    reason is GREED..
    had i sold at that high price which i felt reasonable i could have made the same purchase at half the price now.

    if anyone is hearing this i stand blessed
    i share my experience since 1985
    another successful step i took was booking loss at stocks which are not moving for 3-4 months and switching to moving ones rather than waiting for this laggard to move
    people will say have patience.. but why patience..
    discount sale is there every 6-9 months
     
    Meenakshi Razdan likes this.
  8. Meenakshi Razdan

    Meenakshi Razdan Administrator Staff Member Moderator

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    Nirmal Bang has recommended a buy. Their price target is Rs. 650, a 71% upside. The rationale is as follows:

    We had a meeting with the management of SKS Microfinance (SKS) recently. It may be recalled that the company’s name did not figure in the list announced by the Reserve Bank of India (RBI) for grant of small bank licence. However, the management states that the business of the company will not be affected. Following are the highlights:

    Selection process for allotting a small bank licence: The RBI goes through a four-layer system for allotting small bank licence. The management of SKS feels that the company missed out only in the last stage, which was a review by external members. SKS is hopeful of getting the licence in the next round as now the allotment of licences will be ‘on tap.’

    Probable reasons for not getting the small bank licence: 1) ‘Curing’ time to resolve crisis in the erstwhile state of Andhra Pradesh too less for SKS;
    2) Not having an identifiable promoter;
    3) Foreign institutional investor or FII holding currently in excess of 49% in SKS and the company requiring large domestic equity capital of ~Rs30bn to comply with the regulation of keeping FII holding less than 49%.

    Political risk: With other microfinance institutions or MFIs getting small bank licences, it automatically mitigates political risk for SKS as well. If a political event takes place in an area where a few other small banks are also operating, the
    regulations will be the same for all micro credit institutions.

    Cost of borrowings: SKS currently has a minimum 300bps advantage in funding costs over its peers. Therefore, with small banks able to access low-cost funds, SKS will have to first bridge the funding cost gap. SKS is expected to continue maintaining its cost advantage in the foreseeable future. Mudra (Micro Units Development & Refinance Agency) and Nabard (National Bank for Agriculture and Rural Development) recently started refinancing lines for MFIs at ~10% per annum which will further bring down their cost of funds.

    Operating cost: Small banks will have to spend considerably on technology, talent acquisition, regulatory costs etc. As a result, they will not be able to offer loans at interest rates substantially lower than that of SKS.

    Technology: It will take at least three years for small banks to migrate from cash to electronic form. SKS has an option to tie up with payment banks or other banks to enhance its technology.
     

    Attached Files:

  9. jacobvacha

    jacobvacha New Member

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    iam debating on value investing though unrelated but related.

    luk at the fall of Mothersun sumi. one of the best stocks i like for decades and which has handsomely rewarded shareholders.

    this again underline the school of thoughts of "long term investment."

    like s naren said "buy panic and sell mania"
    of course we all know buy cheap and sell sheep
     
  10. jarmoney

    jarmoney New Member

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    Thanks all. Thanks Meenakshi for the share.
    I think PE multiples might compress in the short term, but if they continue their growth for a couple years before other MFIs catch up, this price might seem like a bargain. I did buy some at 380.

    Nevertheless, if Im a promoter, I will try again to quell the RBI objections or give up and diversify into other sectors (housing finance etc).

    Either way, it appears that there is a 2 year runway from SKS needs to figure its act.
     
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