Monday, August 16, 2010

SKS Microfinance IPO - Analysis, Recommendation, Subscription, Allotment, Listing

SKS Microfinance IPO has come out with an IPO of 16,791,579 shares. This includes fresh issue of 7,445,323 equity shares and an offer for sale of 9,346,256 equity shares held by different investors. (Sequoia Capital India II LLC, SKS Mutual Benefit Trust - Narayankhed, SKS Mutual Benefit Trust - Jogipet, SKS Mutual Benefit Trust - Medak, SKS Mutual Benefit Trust - Sadasivapet, SKS Mutual Benefit Trust - Sangareddy, Kismet Microfinance and Mauritius Unitus Corporation)

The company is the largest MFI in India in terms of total value of loans outstanding, number of borrowers and number of branches, according to the October 2009 CRISIL report titled India Top 50 Microfinance Institutions.

The IPO opens on July 28 and closes on July 30 for QIBs. The issue closes on August 2, 2010 for applicants in the retail and non-institutional categories. The company may consider participation by Anchor Investors. The anchor investor bid/ issue period shall be one day prior to the issue opening date.

The company has fixed the price band at Rs. 850 - Rs. 985.

The issue has been graded by CARE as CARE IPO Grade 4 indicating above average fundamentals. The recent IPOs have had very good listing. Although, this IPO is also not cheap it may give listing returns.

SKS IPO got subscribed over 13.55 times but largely due to QII segment. At the close of the IPO,
QII segment got subscribed by 20.38 times
NII segment got subscribed by 0.13 times
Retail segment got subscribed by 0.16 times

Click here to check if you have been alloted SKS Microfinance shares!

SKS Microfinance closed session at Rs 1,084.10, up 10.06% over the issue price of Rs 985. A share opened at Rs 1040 and touched an intraday high of Rs 1162 on NSE. On the BSE, a share ended at Rs 1,088.58, after witnessing an intraday high of Rs 1,159.90 and low of Rs 1,036.
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  1. SKS Micro Finance earned profit before tax of Rs 267.70 crore on the total income of Rs 958.92cr for the FY 2010. The basic is EPS of Rs 33, much more than some of the large software companies. The country’s largest micro financier is exploiting the poorest of the poor in rural India in the name of providing credit access to them. The company charges interest between 27% -36% p.a. on money lent to the poor. On the one hand, the company says, that there is no scope for reducing the interest; on the other hand, the company is posting robust profits year after year. The so-called valuations they are trying to create for the company is to serve for their own selfish motives. That will benefit the handful of shareholders / promoters.

    Nobel laureate Muhammad Yunus, speaking at the Fairmont Hotel, USA, on May 24, said he is increasingly wary of the direction the booming micro finance industry is taking.

    “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,” he said.

  2. What is wrong with Micro finance Institutions tapping the capital markets? While we cry fould about MFIs charging around 30-40% p.a. interest, what is the next best option for the poor class? Loans from local money lenders at 100%?

    The loans given by MFIs to lower income class are not backed by collateral, hence risk is much higher and thereby pricing of loans is also higher.

  3. The recovery percentage is almost 100%. The risk factor is exaggerated.
    Then, why charge such high rate of interest?

  4. I believe the interest rates will come down over a period of time. The success of the IPO shows strong investor appetite and the likelihood of more such offers coming to market. The IPO has drawn such high-profile investors as billionaire George Soros, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy. But I agree one has to be cautious of this turning into a micro credit bubble and hope these companies do responsible lending.