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FII interest in SKS Micro hits historic high

N Sundaresha Subramanian and Samie Modak/New Delhi/Mumbai 12 Nov 12 | 05:47 PM
 Bharat Financial Inclusion Ltd

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A few foreign institutional investors (FIIs) have picked large chunks of shares in SKS Micro Finance, taking the total FII holding in the company to a historic high of 31.77 per cent, and raising hopes of a revival in the beleaguered micro-lender’s fortunes.

Riding on these sustained buying, SKS shares rose 87.7 per cent during the September quarter. In comparison, SKS had declined 41.7 per cent during quarter ended June. On Monday, it closed with a 1.24 per cent gain at Rs 118 apiece, more than doubling from lows of Rs 54 a share hit six months ago. 

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CLSA, Royal Bank Investment, Credit Suisse, Morgan Stanley and Amundi are among the new investors who have picked over one per cent stake in the June-September quarter, an exchange filing by the company showed. CLSA (Mauritius) owns 9.49 million or 8.77 per cent, while The Royal Bank Investment partners (London) owns 5 million shares or 4.62 percent. Morgan Stanley (Singapore) and Credit Suisse held 4.16 per cent and 1.48 per cent respectively.

Including these, some 30 FIIs held 34.38 million shares or 31.77 per cent in the company, according to the filing. This is even higher than during the post-IPO euphoria when the stock had hit all time high of Rs 1490 in Sep 2010.

The stock had run in to rough weather losing over 95 percent of its value following run-ins with government authorities in Andhra Pradesh, its primary lending market and churn in top management that followed. A government legislation named Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 that among other things restricted the company’s staff from recovering loans from borrowers broke the company’s back. About Rs 1400 crore of loan exposure to the state threatened to turn bad overnight.

Investors began to flee as FII holding, which was had peaked in March 2011 at 21.29 per cent began to fall touching a low of 8.3 per cent in June 2012.

Analysts see the fresh infusion of capital through a qualified institutional placement (QIP) in July as the turning point.  The company has also managed to reduce its reliance on Andhra. It recently said that its loan disbursements in non-Andhra Pradesh states rose by 25 per cent  to Rs 690 crore in September quarter from Rs. 550 crore. The non-Andhra Pradesh portfolio has grown 12% growth to Rs. 1,372 crore quarter or quarter. It has also written off most of its Andhra bad debts.

In a recent report , Portugese brokerage Espirito Santo said, “ SKS’s share price has run up more than 50% since the qualified institutional placement in July, as clarity has emerged on the availability of capital. We estimate loan book growth in excess of 30% for the next three years and with collection efficiency improving on the non-Andhra portfolio, we expect the company to start showing profits from Q3/Q4 of this year."

Espirito Santo retained its Buy stance on the stock “and increase our fair value from Rs.120 to Rs.144, mainly due to the roll-over of our valuation base into FY13.ValuationSKS trades at 1.4x adjusted FY14E book value. We have assumed a total write-off of the Andhra book. We have raised our fair value to Rs.144 from Rs.120 (18% potential upside), mainly due to roll over of the base year." Currently, out of a total of five analysts tracked by Bloomberg, two have buying rating on the stock, while two have 'underperform' rating on it.

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