Arman Financial Services Ltd
Microfinance outlook India:
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microfinance industry reported a healthy 24% CAGR over FY18-23. Rs. 3 Trillion Disbursal in FY23.
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$500 Billion is the untapped loan business.
Management:
MR. JAYENDRA B. PATEL - MANAGING DIRECTOR & VICE CHAIRMAN
MR. ALOK J PATEL - JOINT MANAGING DIRECTOR -
MR. VIVEK MODI - GROUP CHIEF FINANCIAL OFFICER
Company Profile: -
CMP Rs. 2311 per share, EPS 139 (TTM), dtd 18th Oct 2023, PE of 16.66, Industry PE Avg of 19.16 (Range 36 of Bajaj Finance to Shriram Finance 11 PE)
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Target is 153 EPS (Annual), and Target Price band of Rs. 2550 to Rs. 4600* per share if PE rerating happens.
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FY09 AFSL started its journey from 1 Branch in Ahmedabad Gujrat.
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FY15 Gujrat and Madhya-Pradesh, FY16 Maharashtra, FY17 UP, FY18 Uttarakhand, FY19 Rajasthan, FY22 Haryana, FY23 Bihar.
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55 Branches in FY16 to 274 in FY23 with 5.49 Lakh customer base.
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AUM growth from Rs. 117 Cr (FY16) to Rs. 1628 Cr (FY23). 14 times growth in 7 years.
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MSME sector entry in FY17, MSME sector is between Rs. 50K and Rs. 5 Lakhs loan segment in Rural part of India (Non Salaried Rural Segment, two step above the bottom of Pyramid.
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MSME branches increased from 7 in FY17 to 58 in FY23 .
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Per branch AUM grew by >5 times (Rs. 255 Cr in FY23) and number of branches grew by >8 times since FY17.
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Creation of Bank account for people who were shunned as unbankable. Mobile app based loan application assessment and 100% disbursal through cashless mode.
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FY 23 performance AUM Rs. 1943 Cr (58% YoY), Disbursement Rs. 1767 Cr (73% YoY), PAT Rs. 94 Cr (195% YoY), 5.32% is PAT margin for FY23.
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Wholly owned subsidiary Namra Finance, has been assigned the grading of MFI-1(MFI One) by CARE Ratings. The rating is the highest possiblegrading for an MFI Company to manage microfinance operations sustainably. Lower cost of capital
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Rs. 2700 Cr AUM is the target for FY24.
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Microfinance, considerable runway ahead.
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Gross NPA is 2.7%, Cost to income ratio has improved over time from ~55% to 32% in FY23.
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Improved asset quality and reduced NPA has resulted into steller performance.
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In any new branch 600 to 800 customers helps reach Break even, and time taken is 6 to 12 months.
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Shift in Rural micro business owners from JLB (Joint Liability Group) to Individual Business Loan (trying Paytm type business model of WC lending). AFSL is having 2% business share out of this. Having a cautious approach in scaling.
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Operating Model:
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In Micro Fin Avg ticket size grew by 25.3% YoY at Rs. 45,750/-.
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In two wheeler Avg ticket size grew by 6% at Rs. 69,000/- YoY.
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In MSME Loan Avg ticket size grew by 7% at Rs. 75,000/- YoY.
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Three major segment: MSME 15%, Two Wheeler 5%, and MFI 80% business share of AFSL.
Business Risk:
- Sustaining Growth Rate: Stable Rural Ecosystem with Large credit demand.
- Process Risk: Increase in Business volume impacts process efficiency.
- Funding Risk: Increased requirement of Funds for growing demand for Loans.
- Geographic Concentration: >50% of business share is from Gujrat and UP.
- Product Concentration: More than 80% business comes from MFI loans.
Q1 Fy24 Result:
- AUM Rs. 2143 Cr, Disbursement Rs. 537 Cr, Rev Rs. 149.5 Cr, PAT Rs. 39.9 Cr (26.69% margin), GNPA @2.5% and NNPA .1%.
- Total number of Shares increased from 85 lakhs to 94.28 lakhs, Raised Rs. 115 Cr for business growth.
- RBI New Micro Finance guideline raised household limit from 1.25 Lakh to 3 lakhs, more lending headroom.
- RBI FOIR (Fixed obligation to Income ratio) revised to 50% of all loans. Resulting lower credit cost for Industry.
- RBI removed pricing cap allowing lenders to go for risk based pricing.
- Collection efficiency is at >98%
Q1 Con call:
- Microfinance business area growth in 4 to 5 year will taper off and Arman finance wants to plant themselves there before competition reaches.
- Expansion of branches to continue aggressively but based on quality of customers.
- Bihar today stand at largest concentration of Microfinance in India, earlier it was Tamilnadu now its Bihar.
- ESOP for 700 plus employees (till field level) Avg 300 shares each (range 40 shares to 4000 shares).
- 3.5% is provisioning kept (Rs. 75 Cr) of portfolio value for ECL and regulatory reason. This is on higher side.
- Write off was Rs. 10 Cr in Q1 FY24.
- Cost of borrowing in Q2 to be 12.5%. 70% of borrowing was from PSU banks in Q1 FY24.
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