After two years, there finally seems to be light at the end of the tunnel for SKS Microfinance Ltd.

By trimming its employee employee headcount, slicing off branches and cautious expansion outside Andhra Pradesh, SKS is now back in black in the third quarter of this fiscal with Rs 1.2 crore profit.

October-December was the beleaguered Hyderabad-based firm’s first profitable period after seven consecutive loss-making quarters which began with the Andhra Pradesh microfinance meltdown of October 2010.

There has been a 38-per cent reduction in field staff to 10,940 as on December 31, 2012 compared to the year-ago period while number the of branches has come down by 26 per cent at 1,298.

With zero exposure in Andhra Pradesh, there are significant geographical shifts for the company. Now, Karnataka leads its non-Andhra Pradesh business operations with 206 branches out of the total of 1,177.

West Bengal, Odisha, Maharashtra, Bihar and Uttar Pradesh, each with over 100 branches, are its next big States.

However, its potential for expansion lies outside Karnataka and West Bengal. The other States could help the microfinance institution build a bigger portfolio in the long-run.

The over four-year vintage of non-AP branches is likely to deliver better brand recall for SKS in a highly competitive lending market.

From the profitability point of view, the company’s assurance that a steady return on assets (ROA) at four per cent could be targeted under regulated interest rate regime, is however, linked to a stable regulatory environment.

This seems to have stabilised now except in Andhra Pradesh because of the Reserve Bank of India’s categorisation of NBFC-MFIs in December 2011.

Another welcome trend for the company was the 121-per cent increase in the number of loans disbursed. It disbursed Rs 784 crore in the quarter review compared to Rs 322 crore in the year-ago period.

There has been improvement in the market sentiment as seen by a 3.8-per cent rise in SKS scrip on Friday to end at Rs 170.55 on the Bombay Stock Exchange.

Going forward, the company’s performance will depend on a judicious pace of growth. It needs to tread carefully to avoid rapid and unhealthy expansion of portfolio in non-AP states, as this was one of the reasons for the model going wrong earlier.

naga.gunturi@thehindu.co.in

(This article was published on January 26, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.