Satin Creditcare Network Ltd
(BSE Code: 539404) (CMP: Rs.299.50) (FV: Rs.10) (TGT: Rs.375+)
Incorporated in 1990, Gurugram based Satin Creditcare Network Ltd (SCNL) is a non-banking finance company (NBFC) that provides collateral-free, microcredit facilities to economically active women in rural and semi-urban areas; loans to individual businesses and MSMEs (micro, small and medium enterprises); loans for financing solar lamps and
developing water connection and sanitation facilities; and housing finance products. It serves clients in 18 states and union territories in India.
SCNL’s MFI (micro finance institution) portfolio has grown significantly on the back of its entry into new geographies and continued focus on volume driven growth (i.e. new client addition) over value-based growth (i.e. ticket size increase). Over FY16-18, it witnessed 18% / 12% CAGR in volume / value respectively. Further, its move towards new territories of Bihar, West Bengal, Assam and Odisha has started to play well (~35% of the total assets under management [AUM]). The share of exposure to Uttar Pradesh markets has reduced to 24% of AUM (consolidated basis) and the management expects it to reduce further to below 20%.
60% of its customers are repeat clients and more than 65% of its AUM is to clients in the second cycle and above, which ensures adequate asset quality controls. The management has reiterated their stance of 35-40% growth in the MFI portfolio, given the huge under-penetrated microfinance market. Albeit at nascent stages of implementation, SCNL’s foray into the RoE-accretive SME and housing finance segments and tie-up with IndusInd Bank and Capital First are gaining shape. Its foray into the lending businesses of SME and housing finance is through capitalising on its existing ~3 million client base. The role of business origination and credit are demarcated, which ensures credit discipline and effective risk management.
On the MFI side, its tie-up with IndusInd Bank is shaping up well with monthly disbursements at ~Rs.600-700 million v/s Rs.400 million earlier. A substantial part of disbursements will be through this route. The management has increased its focus towards these business segments due to the limited capital charge vis-a-vis on-book portfolio, which gives it the ability to leverage. Its tie-up with Capital First, although at a nascent stage (started doing two-wheeler portfolio on a pilot basis), offers huge growth potential.
The move towards cashless disbursement (57% of total disbursements; 90% of branches are now covered under cashless disbursement) and cost rationalisation measures have seen Opex/ AUM decline over the past few quarters. Cost rationalisation will aid in curtailing overall cost ratios further. Rating upgrade (long-term rating upgraded to CARE A- in Q1FY19), favourable ALM [asset liability management] (51% / 68% of liabilities/assets due for re-pricing in less than a year) and customer segment (indifferent to interest rate) will help mitigate severe margin pressures. During Q1FY19, GNPAs (gross non-performing assets) were at Rs.2100 million and credit loss was at 3.5%. Collection efficiency remained at 98%. The trend of recoveries in Uttar Pradesh markets is encouraging. On the flip side, the pockets of Maharashtra (Amravati region) and Madhya Pradesh (Sagar) remain under stress. SCNL has limited exposure in these pockets and efforts towards recovery are underway. We have tweaked our credit cost marginally for FY19E.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It has formed a downward channel pattern and trades below all important moving averages like the 200 DMA level on the daily chart. Start accumulating at this level of Rs.299.50 and on dips to Rs.265 for medium-to-long term investment and a possible price target of Rs.375+ in the next 12 months.