SKS Microfinance scores a hit on debut, rises 18%

Paves way for listing of more microfinance institutions.

SKS Microfinance, the country’s largest microfinance institution (MFI), made an impressive debut on stock exchanges on Monday, with the scrip gaining nearly 18 per cent during the day. At close, the stock was up more than 10 per cent from the issue price of Rs 985. SKS has a loan book of Rs 4,300 crore.

On the National Stock Exchange (NSE), the stock rallied 5.58 per cent to Rs 1,040. It touched an intra-day high of Rs 1,162 (up nearly 18 per cent) before some selling pressure set in. It settled the day at Rs 1,084.10, up 10.06 per cent over the issue price. A total of 13.78 million shares were traded on the first day on NSE.

On the Bombay Stock Exchange (BSE), the stock opened at Rs 1,036, before touching a high of Rs 1,159.90. More than 6.82 million shares exchanged hands on BSE. The stock closed the day at Rs 1,088.58, valuing the company at Rs 7,834 crore (market capitalisation).

SKS Microfinance’s Rs 1,654-crore initial public offer (IPO), which closed on August 2, was subscribed 20.38 times in the qualified institutional buyer category. The portion reserved for high net worth individuals was subscribed 18.26 times, while that for retail investors was subscribed nearly three times. The price band was Rs 850-985 per share.

Vaibhav Agrawal, an analyst at Angel Broking, said, “Sustained profitability is what differentiates SKS Microfinance from non-banking finance companies and banks. It has a good social collateral model and an efficient distribution network.”

With such a remarkable listing on a day the markets were weak, SKS Microfinance has paved the way for listing of more MFIs. The company has also drawn similarities with Mexican microfinance giant Banco Compartamos, that got listed in April 2007. Interestingly, the Mexican company was also subscribed 13 times. Its share price surged 22 per cent on the first day of trading, even though the offer price was 12 times its book value. In case of SKS Microfinance, the IPO was priced at 6.69 times its book value for FY10.

The original investors of Compartamos received about $450 million for selling 30 per cent stake, representing a rate of return on their original investment (about $6 million) of 100 per cent a year compounded over the eight-year investment period.

With the share price of SKS Microfinance galloping 10 per cent at the close, sector analysts said the stock was richly valued and would see profit-booking in the short term.

“However, over the next three-four years, the company may come up with another capital-raising plan,” added Agrawal.

The IPO comprised fresh issue of 7.45 million equity shares and an offer for sale of 9.35 million equity shares by the company’s shareholders. After the issue, public shareholding in the company is pegged at 21.6 per cent, while Sequoia Capital’s stake has come down to 15.1 per cent from 22.3 per cent.

As of March 31, net non-performing assets were Rs 4.80 crore (0.16 per cent of the loans). The loan book of the company grew at a compounded annual growth rate of 122 per cent to Rs 2,975 crore during FY07-10.