Reiterate ‘outperform’ on SKS Microfinance and set a 12-month target price of R520, based on 15x P/E (price-to-earnings) multiple, in line with the historical average, applied on 24 months forward EPS of R35. We see the company to continue to deliver healthy loan/EPS growth, while we find the stock attractively valued.
The Reserve Bank of India (RBI) has relaxed the ticket size restrictions for MFIs. Under the existing rules, MFI loans that are above R15,000 in ticket size, have to be of at least two-year duration. The reason behind stipulating a higher tenure for higher ticket loans was to ensure manageable weekly installments for the borrowers. For a long time, this R15,000 limit was an effective cap on the lending ticket size for MFIs — since the lenders were uncomfortable taking longer term exposures.
It is important to note that in April 15 when the RBI relaxed the overall single borrower lending limits for the sector, this rule on ticket size was not relaxed.
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