SKS Microfinance - Views

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Aditya Birla Money has the following recommendation on the IPO of SKS Microfinance,

SKS has carved out and demonstrated a good business model. The kind of return generated by SKS (ROE – 21.66% in FY10) with bare minimum delinquency in an unsecured portfolio in rural India is unprecedented. SKS has grown its loan portfolio to Rs29.4bn, very quickly which is commendable. Growing in size and geography from here would require investments into systems and personnel. It also has an opportunity to grow its fee based income through leveraging its network. Therefore, there are no two thoughts as far as the potential of the business is concerned. At the upper price band of Rs. 985 and lower price band of Rs. 850, the issue is aggressively priced at around 6.68 times and 5.77 times its FY10 book value of Rs. 147.27. On its post issue book value of Rs 234.06 the issue is priced at around 4.20 times (at the higher band). We expect the growth to be stronger in FY11 and FY12 and moderate thereafter. Considering a 40% CAGR growth in loan book over the next two years, the current offering is at 3.0x its FY12 book value, which is expensive when compared to the peerset.

Overall we are positive on the business of the company but sceptical from listing gains perspective and therefore recommend avoid for the short to medium term investors. However long term investors can subscribe to the issue at the lower price band of Rs. 850.

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Krednt has the following Views on the IPO,

Post issue, the stock would trade at a price to book value (P/BV) of 6.44x on the lower side and 7.46x on the higher side of the price band respectively of its FY2010 book value Rs.132.04/share. Considering the price to earnings (P/E) valuation, the stock is available at a P/E of 34.99x on the lower and 40.55x on the higher side of the price band respectively of its annualised FY10 EPS of Rs.24.29/share. Looking at the valuation parameters, the company seems to be overvalued but we rate a subscribe rating on the issue, as it is one of the largest players in the Indian micro finance industry having pan India operations and a well diversified portfolio. Further SMFL, is having strong financial position with healthy margins including good asset quality, comfortable capital adequacy ratio and liquidity position coupled with easy access to diverse sources of institutional funding. Hence, we rate a subscribe rating on the issue with a long term view

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HDFC Securities Views on the IPO of SKS MicroFinance,

SKSML has issued shares in the past 15 months to private equity investors @ Rs.300 per share. The current issue is priced a bit on the expensive side (31.4-36.3 times its FY10 EPS and 5.77-6.68 times its BV for FY10). Its smaller peer SE Investments has also risen 200% over the past 4-5 months aided by Bonus and split announcements. On a comparative basis with its peer, SKSML does not seem too expensive. However compared to Banks and Finance companies, it seems expensive based on P/E, dividend yield and P/BV basis. On a post issue basis, however the P/BV could come down, mainly due to the premium collected in the issue. Given its size, the present institutional investors, the recent growth and prospects going forward and the fancy towards the sector, the issue could still give some listing gains.

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Angel Broking has the following Views on the IPO,

SKS Microfinance (SKSMF) offers a high quality play on India's vast Rs2.7lakh cr microfinance opportunity. SKSMF's core strength lies in effective risk management and governance, advanced technology, wide product portfolio, diversified sources of capital and strong pan-India distribution network, all of which have brought down the cost of credit to the poorest to amongst the lowest in the world, unlocking tremendous latent demand. We recommend a Subscribe to the issue.

Global peers are trading at 3.7x trailing P/BV and 19.1x P/E (Closest peer Compartamos is trading at 8.0x and 21.7x respectively). At the upper end of the price band, SKSMF will be valued at P/BV multiples of 6.6x FY2010 and 3.1x FY2012E. Although valuations are on the higher side, looking at the strong and sustainable growth and RoE prospects for the company, we recommend a Subscribe to the issue.

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Prabhudas Liladhar has the following views on the IPO,

SKS is the first listed pure-play microfinance company and therefore, has no peer comon. We believe SKS is available at premium valuations, which does capture most of the positives. However, we believe the company commands premium valuations given the fact that 1) it is the only listed player in this space 2) market leader in its business 3) has a proven scalable business model and 4) has strong return ratios and superior asset quality. Moreover, the company should be able to maintain 20-25% RoE in the medium term as it leverages its balance sheet and if it maintains its asset quality as it scales up, the company is likely to trade at premium valuations. We recommend “Subscribe” to the issue, with a medium-to-long term perspective.

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Edelweiss has the following recommendation on the IPO of SKS Micro Finance

We believe the SKS’s asset growth will be driven by increase in its membership base, rise in average ticket size and expanded product offerings (including
housing loans, business loans, insurance loans, etc). Assuming 60% growth in earnings over FY10-12E, we expect it to deliver RoEs of 20% by FY12. At the
upper price band of INR 985, it is available at 2.9x FY12E book and 16x earnings. We believe SKS should command a premium considering its market leadership
and unique positioning in the MFI industry and recommend ‘SUBSCRIBE’.