Originally posted by wiseowl Its business performance should be watched at least for one more year.SKS  is still expensive on a P/B, P/E or mcap/sales basis.

Wiseowl,

You are right it on these parameter it looks expensive. The more I am interested in knowing whether SKS has a moat or some kind of strategic advantage which will allow it to be sector leader

Over the last two weeks I studied the Microfinance sector and I think we have a potential compounding opportunity in SKS microfinance.

I am outlining the positives below to start the debate.

Short Term Positives
1. The growth is back to 40%+ level for the entire microfinance sector (average last quarter is 61%) and SKS is displaying industry leading growth.

2. The asset size has started growing again for SKS and is now over Rs 3000 Crs making it the second largest in the Industry. Please note before the AP crisis the book size of SKS was above Rs 5000 Cr. So the company has a while even to reach its old book size

3. Asset quality is stable for the entire sector and so it is for SKS

4. The new small bank guidelines are almost an invitation for all Microfinance companies to convert into bank easily and chances are SKS will be in contention

5. SKS is very well capitalized now to take on the challenges of growth

6 there is a flurry of PE activity in the sector in last three months and many are in pipe line in next six month

Long Term

1. RoEs are about to reach 20% and likely to sustain

2. RoAs are expected to reach to 4% which is a dream

3. The sector potential is huge and only 3-to 10% is exploited as yet

4. Line extensions such as housing finance and vehicle finance are easily possible

5. The obvious risk mitigation measures are in place

Risks

1. It is unsecured lending, though asset quality is never a problem world over for a long time

2. Past experience has shown that it is prone to political intervention


Edited by Avora - 07/Dec/2014 at 3:51pm

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