Microfinance institutions (MFIs) in India, catering to the needs of the weaker sections of society in the hinterlands, have had a good run in the last couple of years. Satin Credit Care Network, the fourth largest MFI in the country in terms of gross loan portfolio, is a case in point. The company, with strong presence in North India, has seen its loan portfolio grow by a stellar 76 per cent annually between FY14 and FY16. Earnings, as a result have nearly quadrupled during this period.

In the current fiscal too, the company’s loan and profit growth has been on a healthy footing but for the slowdown in disbursements and collections, post demonetisation.

Nonetheless, investors with a long-term perspective, willing to weather near-term volatility and take on some risk inherent with the microfinance industry, can bet on Satin Credit Care.

The positives

Consistent growth in profitability and good asset quality thus far, comfortable capitalisation, long-standing experience of the promoters and diversified funding mix are key positives.

Also, collection efficiency, which took a knock between November and December, is gradually on the mend, and the company has been focussing on cashless disbursements and collections.

Satin Credit’s gross loan portfolio (standalone) stood at ₹3,344 crore as of December 2016, of which the group lending business constituted over 99 per cent. The company recently started to diversify into other segments such as individual micro loans and loans to micro, small and medium enterprises.

It also recently acquired majority stake in TSPL which acts as a business correspondent for various banks. The company is also looking to foray into the affordable housing segment.

The cash crunch post demonetisation impacted the company’s disbursements. While the loan portfolio grew by 47 per cent YoY as of December quarter, it declined 11 per cent sequentially. Asset quality too slipped, with gross non-performing assets as a per cent of loans increasing marginally from 0.24 per cent in September to 0.5 per cent in the December quarter.

Collection efficiency, which was a robust 99 per cent pre-demonetisation, fell to 78 per cent between November 2016 and February 2017, driven by steeper slowdown in certain markets of UP, Uttarakhand and Maharashtra.

Due to concerns on asset quality, ICRA recently downgraded the outlook from stable to negative while retaining BBB+ rating on its debt instruments.

However, there has been an improvement in the collection efficiency in February to 89 per cent.

The lag for the months of November, December and January is 6 per cent, 7 per cent and 10 per cent respectively — implying that 6 per cent of borrowers have not paid their November instalment (over 90 per cent of borrowers are back into the system).

While the company has higher exposure in certain States --- UP, Bihar and MP constitute 68 per cent of loans — it has been consciously reducing concentration. In FY14, the three States constituted a little over 80 per cent of loans.

At the current price, the stock is trading at 2 times one year forward book. Bharat Financial Inclusion (formerly SKS Microfinance), the second largest MFI, trades at 3.2 times.

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