Satin Creditcare Network Ltd. (SCNL) is one of India’s largest Microfinance Institutions (MFI) in terms of Gross Loan Portfolio operating out of Gurugram with a strong presence in North India. It started in 1990 as a provider of individual and small business loans and savings services to urban shopkeepers. It was registered as an NBFC with the RBI in 1998 and was converted into an NBFC-MFI in 2013. SCNL offers a comprehensive bouquet of financial products focused on financial inclusion – MFI Segment and Non-MFI Segment (through its subsidiaries SHFL and SFL). The company has a pan-India presence mainly concentrated in UP, Bihar, MP, and Punjab.
SCNL’s business is primarily based on the joint liability group model of lending (JLG Model) for providing collateral-free, microcredit facilities to the economically weaker section of society predominantly women in both rural and semi-urban areas, who otherwise have limited access to mainstream financial service providers. The company started its group lending business with the JLG model, which constituted 88% of its consolidated portfolio as of Sep’23, while 6% is from the housing book and the rest from Satin Finserv Ltd.
The company is experiencing strong growth as it is well-positioned to take advantage of the upcycle in the MFI (microfinance) sector. The quality of the company’s portfolio has been consistently improving with an increase in the provision coverage ratio (PCR). Stage 3 has declined from 4.0% to 2.4% as of Sep’23 on a YoY basis. The recent credit rating upgrade (A stable from A-stable) provides reassurance regarding the company’s margins. Satin has recently raised equity funds to aid future growth prospects. We expect the company to register an AUM growth of 25%+ in FY24E & FY25E while maintaining a Return on Assets (RoA) of 4%+ and a Return on Equity (RoE) of 20%+. We initiate coverage on the stock with a BUY Rating for a Target price of Rs 324.1 valuing at 1x P/BV of FY25e thus providing an upside of 25%.
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