Microfinance to deliver big growth for BFIL

June quarter’s robust show likely to continue

Bharat Financial Inclusion (BFIL), erstwhile SKS Microfinance, has rewarded its investors handsomely in the past one year, having surged 57 per cent, compared with a 2.5 per cent fall in the benchmark S&P BSE Sensex, to touch a 52-week high of ~890.75 on July 22.

Continued healthy traction in its core business has led to these gains and if analysts are to be believed, this rally is unlikely to fizzle out anytime soon.

“BFIL trades at 4.8 times FY17 estimated book and these valuations should sustain and even improve, given its strong profitability, healthy asset quality and capitalisation,” says Sunesh Khanna, financials analyst, Motilal Oswal Securities. According to him, the company can clock in 49 per cent growth in net profit over FY16-18.

This optimism is echoed by most analysts who have raised their fullyear estimates for the company to factor in the strong earnings in the June quarter (Q1). Analysts at Edelweiss Securities, for instance, have raised their FY17 and FY18 earnings estimates for the company by eight per cent and 17 per cent, respectively.

BFIL posted strong results in Q1, even after excluding the non-core, one-off items. Its assets under management (AUM) grew 76 per cent on the back of healthy growth in both customer additions as well as average size of the loans. Falling cost of funds was another positive and aided overall profitability. While the reported net profit was aided by a MAT credit (refund) of ~97 crore, adjusting for this as well, the net profit growth was impressive at 127.1 per cent to ~139 crore over the year-ago quarter. Gross non-performing assets (NPA) ratio remained negligible at 10 basis points in the quarter.

Overall, presence in an under-penetrated segment of microfinance, lowest lending rates amongst peers and strong balance sheet are BFIL’s strengths. Analysts expect the company to raise fresh equity worth ~600 crore soon, which could lead to some marginal dilution in equity but provide fuel for future growth.

Analysts believe that despite this dilution, the company’s return-on-equity ratio should stay healthy at 22 per cent-plus levels, owing to the strong earnings growth. As its peers make the transition to small finance banks, BFIL will continue to be a pureplayer in the high-margin microfinance segment.