SKS Microfinance gains after reducing interest rate, RBI move

SKS Microfinance surged 6.13% to Rs 450 at 10:30 IST on BSE after the company announced a 1% reduction in the interest rate charged to borrowers and after the central bank revised the loan amount with tenure not less than 24 months.

The company made announcement before market hours today, 27 November 2015.

Meanwhile, the BSE Sensex was up 133.46 points, or 0.51%, to 26,092.09.

On BSE, so far 2.1 lakh shares were traded in the counter, compared with an average volume of 3.35 lakh shares in the past one quarter.

The stock hit a high of Rs 450.50 and a low of Rs 437.10. The stock hit a 52-week high of Rs 589.50 on 31 July 2015. The stock hit a 52-week low of Rs 325.15 on 26 November 2014.

The stock had outperformed the market over the past one month till 26 November 2015, gaining 3.25% compared with 5.13% fall in the Sensex. The scrip had, however, underperformed the market in past one quarter, sliding 10.14% as against Sensex's 0.95% rise.

The mid-cap company has an equity capital of Rs 126.91 crore. Face value per share is Rs 10.

SKS Microfinance announced a 1% reduction in the interest rate charged to borrowers from 20.75% to 19.75% with effect from 7 December 2015, for all future disbursals. SKS Microfinance said with this reduction in the interest rate, the company becomes the first micro finance institution (MFI) to charge a sub-20% interest rate on its core income generating loans (IGL), which are unsecured micro loans. Interest rate of 19.75% is the lowest rate charged by any private sector MFI in the world.

This is the fourth interest rate reduction, aggregating 4.8%, announced by the company since October 2014. The reductions are consistent with the company's policy of passing on the cost advantages accruing from reduction in the cost of borrowing and economies of scale to its borrowers.

SKS Microfinance could reduce its marginal cost of borrowing to 11.3% in Q2 September 2015 from 13.6% in the year ended 31 March 2014 (FY 2014) on account of downward adjustments in risk premium. Marginal cost of borrowing for second half of the year ending 31 March 2016 (H2 FY 2016) is expected to be lower than 11.3% given the company has accessed refinance from MUDRA at 10% and issued commercial papers at 9.5% per annum in October and November 2015.

The company's sustained turnaround, improved profitability in the year ended 31 March 2015 (FY 2015), Q1 June 2015 and Q2 September 2015, capital raise in May 2014, rating upgrade as also issuance of commercial papers and non-convertible debentures are the factors that drove the reduction in its cost of borrowing.

Creditor confidence in SKS Microfinance has also been boosted by the company's spotless repayment track record. During the most difficult Andhra Pradesh microfinance situation, the company did not join Corporate Debt Restructuring (CDR) and met all its financial obligations -- amounting to Rs 5800 crore -- to the banking system without any hair-cut or rescheduling.

The company has a short-term credit rating of 'A1+' and a long-term rating of 'A+'. In Q2 September 2015, SKS Microfinance's gross loan portfolio has surpassed the past peak of Rs 5434 crore (in Q2 September 2010), thanks to the company's consistent annual growth of around 50%. Also, the company registered a 5.3% quarter-on-quarter drop in cost to income to 47% in Q2 September 2015 from 52.3% in Q1 June 2015.

As of 30 September 2015, SKS Microfinance had a net worth of Rs 1203 crore and a capital adequacy of 24.6%. Cash and cash equivalents stood at Rs 834 crore.

Meanwhile, The Reserve Bank of India advised yesterday, that limit of the loan amount by micro finance institutions for which the tenure of the loan shall not be less than 24 months, has been raised to Rs 30000 from the present limit of Rs 15000.

SKS Microfinance's net profit rose 37.2% to Rs 77.86 crore on 61.3% rise in total income to Rs 324.29 crore in Q2 September 2015 over Q2 September 2014.

SKS Microfinance is among the largest microfinance companies in India. The company's mission is to provide financial services to the economically weaker sections.

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