Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SKS Microfinance
Underweight
SKSM.BO, SKSM IN
Still very stressed - cut PT to Rs200
• We cut our PT on SKS to Rs 200 from Rs 550, accompanied by deep
earnings cuts and loss forecasts for FY12. We think the Andhra Pradesh
portfolio is seeing more losses and the business model has weakened
elsewhere too. Recent regulatory changes are not as positive as the street
thinks. We fear that SKS’ may need more capital. Maintain Underweight
– the risk-reward payoff is unappealing.
• Asset quality risks increasing. We expect AP collections to fall to 25%
(3Q11 - 43%), triggering large writeoffs in FY12 – SKS’ disbursements
freeze is bound to affect collections adversely. We also raise credit cost
assumptions ex-AP, to 3.5% (from 2.25%) - channel checks indicate
high inflation is impacting borrower finances. If the 3Q blip in West
Bengal (95% collections) becomes a trend, there are downside risks to
forecasts.
• New RBI rules still restrictive. The RBI recommendations may not
translate to the AP government relaxing provisions of the APMF Act.
The final RBI rules are less restrictive than the original Malegam
committee recommendations, but are still capable of stifling growth in
the sector. At the very least, the cost of compliance and data collection is
likely to be very high, while ticket size expansion has been capped.
• Capital at risk. We now forecast a large loss (Rs7bn) in FY12, driven
by the AP write-offs. This is expected to shrink equity by 40%, bring
equity/assets down to a precarious 22-23% and probably entail a recap –
unless SKS gets relief on NPL accounting. We expect a return to profits
in FY13, with ROEs normalizing at ~14% in FY14.
• Not cheap enough. The stock’s at 2.7x PB and normalized ROEs are
~15%. Mcap/assets at 0.6x is at a ~80% premium to NBFC peers. We
now value SKS at ~1.3x FY12 book, using Gordon growth for the “good
bank” and writing down the AP losses as a “bad bank”. We still see
negative surprises and further downside: retain UW.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SKS Microfinance
Underweight
SKSM.BO, SKSM IN
Still very stressed - cut PT to Rs200
• We cut our PT on SKS to Rs 200 from Rs 550, accompanied by deep
earnings cuts and loss forecasts for FY12. We think the Andhra Pradesh
portfolio is seeing more losses and the business model has weakened
elsewhere too. Recent regulatory changes are not as positive as the street
thinks. We fear that SKS’ may need more capital. Maintain Underweight
– the risk-reward payoff is unappealing.
• Asset quality risks increasing. We expect AP collections to fall to 25%
(3Q11 - 43%), triggering large writeoffs in FY12 – SKS’ disbursements
freeze is bound to affect collections adversely. We also raise credit cost
assumptions ex-AP, to 3.5% (from 2.25%) - channel checks indicate
high inflation is impacting borrower finances. If the 3Q blip in West
Bengal (95% collections) becomes a trend, there are downside risks to
forecasts.
• New RBI rules still restrictive. The RBI recommendations may not
translate to the AP government relaxing provisions of the APMF Act.
The final RBI rules are less restrictive than the original Malegam
committee recommendations, but are still capable of stifling growth in
the sector. At the very least, the cost of compliance and data collection is
likely to be very high, while ticket size expansion has been capped.
• Capital at risk. We now forecast a large loss (Rs7bn) in FY12, driven
by the AP write-offs. This is expected to shrink equity by 40%, bring
equity/assets down to a precarious 22-23% and probably entail a recap –
unless SKS gets relief on NPL accounting. We expect a return to profits
in FY13, with ROEs normalizing at ~14% in FY14.
• Not cheap enough. The stock’s at 2.7x PB and normalized ROEs are
~15%. Mcap/assets at 0.6x is at a ~80% premium to NBFC peers. We
now value SKS at ~1.3x FY12 book, using Gordon growth for the “good
bank” and writing down the AP losses as a “bad bank”. We still see
negative surprises and further downside: retain UW.
No comments:
Post a Comment