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FII interest in SKS hits historic high

N Sundaresha Subramanian & Samie Modak/New Delhi/Mumbai 13 Nov 12 | 12:07 AM
 Bharat Financial Inclusion Ltd

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A few foreign institutional investors (FIIs) have picked up 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, raising hopes of a revival in the beleaguered micro-lender’s fortunes.

Riding on this sustained buying, SKS shares rose 87.7 per cent during the September quarter. In comparison, SKS had declined 41.7 per cent during the quarter ended June. On Monday, it closed with a 1.24 per cent gain at Rs 118 apiece, more than doubling from the 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 which have picked up over one per cent stake in the June-September quarter, an exchange filing by the company showed. CLSA (Mauritius) owned 9.49 million or 8.77 per cent, while The Royal Bank Investment Partners (London) held five million shares or 4.62 per cent. Morgan Stanley (Singapore) and Credit Suisse held 4.16 per cent and 1.48 per cent, respectively.

Top non-promoter shareholders in SKS Micro
(as on Sept 30, 2012)
Investor Shares 
held (mn)
Stake (%)
Clsa (Mauritius) Ltd 9.49 8.77
Sandstone Investment Partners I 8.30 7.71
The Royal Bank Investment 
Partners I (London)
5.00 4.62
Morgan Stanley Asia (Singapore Pte) 4.50 4.16
Vinod Khosla 4.23 3.92
Bajaj Allianz Life Insurance 
Company Ltd
2.98 2.76
Amundi Funds Equity India 2.75 2.54
Morgan Stanley Investment
 Management INC A/c
2.57 2.38
Genesis Indian Investment 
Company - General Sub Fund
2.32 2.15
Source: BSE

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 an all-time high of Rs 1,490 in September 2010.

The stock had run into rough weather, losing 95 per cent of its value following run-ins with government authorities in Andhra Pradesh, its primary lending market, and the 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 1,400 crore of loan exposure to the state threatened to turn bad overnight. Investors began to flee as FII holding, which 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 states rose 25 per cent to Rs 690 crore in the September quarter from Rs 550 crore a year before. The non-Andhra Pradesh portfolio has grown 12 per cent to Rs 1,372 crore quarter-on-quarter. It has also written off most of its Andhra bad debts.

In a recent report , Portugese brokerage Espirito Santo said, “SKS’ share price has run up more than 50 per cent 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 per cent 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."

Independent market analyst Ambareesh Baliga said expectations that the microfinance Bill will get passed in the winter session of parliament is driving sentiments. "If that happens it will override the Andhra Bill, which has been the prime source of trouble for SKS. Also, the business model of microfinance companies is undergoing change. As the government and banks are pushing for financial inclusion, MFIs could have a big role to play thanks to their network and reach to the grassroots. Going ahead, we could see MFIs playing the role of business correspondents. Currently, accessing capital is a challenge for MFIs. But going ahead, we see banks picking up stakes in them to get access to their reach."

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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