Satin Cred­it­care Net­work Ltd

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(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.

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