Satin Creditcare Network Ltd- a niche microfinance company with massive growth potential

          The Largest micro finance player in North India

 CMP- Rs 367.7

Satin Creditcare Network Limited (SCNL) was formed in 1990 as a Non-Banking Finance Company (NBFC) with the simple concept of providing individual loans to urban shopkeepers for tiny businesses by Mr. Harvinder Pal Singh. Since then the company has expanded and evolved into one of the leading microfinance institutions in India with its current geography in North as well as Central India.

Satin Creditcare Network (SCNL) is the sixth largest MFI in the country with an AUM of ~Rs 21bn and a primary focus on North India where it has a presence across 11 states. It also provides business correspondent services to Yes Bank and Ratnakar Bank through a group company for a 10% royalty fee, besides originating LAP for Reliance Capital. Management sees immense potential for growth in the underserved states of Uttar Pradesh, Bihar and Madhya Pradesh, and is targeting 60-70% AUM CAGR along with steady 18-20% ROEs over FY15-FY17.

SCNL provides loans to both urban poor and rural poor to meet their productive requirements in starting new business or for growing an existing business. The company’s microfinance operation is based on both Joint Liability Group(JLG) model as well Self Help Group model (SHG).

At present, SCNL has its strong presence and serves its clients throughout Bihar, Chandigarh, Delhi, Haryana, Jammu , Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and Uttrakhand . SCNL is  listed on NSE and recently on BSE.

It is backed by very strong financial institutions. Partners - http://www.satincreditcare.com/our-partner.php

http://www.satincreditcare.com

Co promoters HP Singh is a CA & his brother Satvinder Singh is a MBA from IMT.They are coming from a service class background & enjoy good reputation in NCR where the co is headquartered. As such HP Singh is a first gen entrepreneur with growth mindset.The type of growth they have shown is superb over last 4 years with EPS increasing from 0.78 in fy 2011 to 12 in fy 2015.This year EPS may touch 20 as last qtrly EPS was 4.5 & there is good infusion of funds by PE players.

Co had come with IPO in 1996 & got listed at DSE.It transformed into MFI in 2008 & sinc ethen has been on strong growth path.It got relisted at NSE 4 months ago and on BSE recently.

Almost 50% equity is with quality PE players like Currently, it has 5 foreign investors - ShoreCap, Danish Microfinance Partners K/S, Microvest, Norweign Microfinance Initiative Fund and SBI FMO Emerging Asia Financial Sector Fund Pte Ltd - who jointly hold 48.98 per cent stake in the company.This is a big comforting factors as these  are specialized MFI investors who would have invested only after doing their home work. With 35% stake with promoters issue is of liquidity.

Business profile: 

SCNL was formed in 1990 to give individual loans to urban shopkeepers for tiny businesses. It forayed into microfinance in 2008 and scaled up quickly to emerge as the largest player in Northern India. The company has a presence in 11 states and is a market leader in Uttar Pradesh and Madhya Pradesh. SCNL currently has ~2,500 employees, 267 branches and 1.2mn clients. AUM has grown rapidly over FY11-15, which has aided +180% CAGR in net profit, even as lower delinquencies have helped keep GNPAs at 0.02%. Notably, SCNL enjoys the confidence of PE investors who have infused money at regular intervals.

Targeting 65-70% CAGR in AUM over next two years: 

SCNL is the sixth largest MFI in India with an AUM of ~Rs 21bn as of Mar’15 and strong potential for growth given its presence in states where the per capita income level is below the national average. Management sees substantial business opportunities as the sector is highly underpenetrated and believes it can scale AUM up 60-70% over FY15-FY17 to ~Rs 56bn.

Strong profit profile: Spreads are likely to remain protected at 9-9.5%. Opex to average assets has come off from ~10% in FY12 to ~6% currently and management expects to maintain this in a range of 5.5-6.5% going forward. ROE has improved substantially from sub-5% in FY12/FY13 (Andhra Pradesh crisis) to ~19% in FY15 and management expects a range of 18-20% going forward.

Final word- strong buisiness profile of the company should give multi-fold returns in the long run. 

Disclaimer: I have vested interest in this company and hence my views are biased.

Registration Status with SEBI: I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”.