SKS Microfinance IPO : Planning to float IPO by July

by khalid on 01/06/2010 · 14 comments

SKS Microfinance is India’S largest microfinance lender. The company is the first microfinance institution (MFI) in the country to go for a listing. This microfinance lending idea getting popularize after Muhammad Yunus and his Grameen Bank won the Nobel Peace Prize for microfinance lending. This idea of lending helps both the poor and the investors, too.

Akula, an ex-McKinsey & Co. consultant, is founder and chairman of SKS Microfinance, India’s largest microlender. SKS will be the first Indian microfinance lender to go public. Among its backers are venture capital firm Sequoia Capital and Catamaran Management Services, a fund run by N.R. Narayana Murthy, co-founder of outsourcing giant Infosys. It recently filed to raise up to $250 million in an initial public offering to be listed on the Bombay Stock Exchange and the National Stock Exchange of India.

Since its inception in 1997 as a non-governmental organisation, Swayam Krishi Sangam (SKS) has shown phenomenal growth. SKS became a non-banking finance company in 2005 and converted into a public limited company in May 2009. For private equity investors, the attraction of MFIs lies in two sets of figures: interest rates ranging from 30% to 60% and repayment rates exceeding 95%. Microlending in India grew by an estimated 45% for the year ended March 2010, Micro-Credit Ratings International says. Despite the high interest rates charged, this suggests there is tremendous demand for microfinance.

In India, microlending grew at an estimated 45 percent in the year ended March 2010.

Related Posts Plugin for WordPress, Blogger...

Leave a Comment

{ 14 comments… read them below or add one }

tools June 1, 2010

very nice information about SKS Microfinance IPO : Planning to float IPO

Reply

khalid June 2, 2010

Thanks for visiting and nice comment, how do you get PR3 by posting just 6 post ? Would you like to share?
Thanks

Reply

k a prasanna July 6, 2010

Muhammad Yunus and his Grameen Bank won the Nobel Peace Prize for microfinance lending,(without profit motive). SKS is eligible for Nobel prize for exploiting the poor through microfinance lending. That is the difference.

Reply

khalid July 6, 2010

Very true Prasanna, our microfinancer are eying for huge profit from poor people, they are working like Mahajan of old days in a modern way, there is no comparision between noble work of Yunus and selfish work of Akula.

Thanks for adding your valuable comment here.

Reply

k a prasanna July 13, 2010

log on to first choice for ipo analysis of SKS micro and EIL

Reply

k a prasanna July 13, 2010

IPO ANALYSIS: SKS MICROFINANCE LIMITED – MODERN DAY SHYLOCK – AVOID

Andhra Pradesh government cracks down on predatory practices of Microfinance Institutions
The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
I PO ANALYSIS:

The ultimate goal of microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to shocks and economic stress and improve quality of life by enabling better access to education and healthcare. The microfinance industry has grown at a rapid pace across the world and has created a positive impact in the lives of millions of poor people.
For further details log on to firstchoiceipoanalysis.com
k a prasanna

Reply

khalid July 13, 2010

Thanks for adding your valuable comment here.

Reply

k a prasanna July 20, 2010

SKS MICRO FINANCE RESULTS – CAUSE, EFFECT AND SIDE EFFECTS, WHOSE CASH IT IS ANY WAY?
SKS Micro Finance earned profit before tax of Rs 267.70 crore on the total income of Rs 958.92cr for the FY 2010. The basic is EPS of Rs 33, much more than some of the large software companies. The country’s largest micro financier is exploiting the poorest of the poor in rural India in the name of providing credit access to them. The company charges interest between 27% -36% p.a. on money lent to the poor. On the one hand, the company says, that there is no scope for reducing the interest; on the other hand, the company is posting robust profits year after year. The so-called valuations they are trying to create for the company is to serve for their own selfish motives. That will benefit the handful of shareholders / promoters.
Read full article in firstchoiceipoanalysis.com

Reply

k a prasanna July 22, 2010

TEN REASONS WHY ONE SHOULD NOT INVEST IN SKS MICRO FINANCE IPO

1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.

2. Unsustainable business model: The business model will not sustain in the long -run.

3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.

4. Look at the salary of top executives :

Suresh Gurumani – Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula – chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.

5. Mohd. Yunus says – “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”

6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.

7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.

8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.

9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.

10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.

Reply

facts right July 27, 2010

Anonymous said…
1. Get facts right…ROI is 28 per cent.
2. the model is based on the grameen bank model. It is adopted by all MFIs across the globe (invariably). If it was not scalable or sustainable, the model would not have survived 30 yrs. Please dont have prejudice.
3. The treeline deal is a cashless transaction. To be a promoted, Dr. Vikram had to convert his ESOPs to fully paid up shares. Hence the transaction. I am sure, a little degree of personal reasons is still ok. He has paid 14 crores as advanced tax. Check ET sometime in May.
4. the model of SKS has made them the fastest growing MFI in the world and the largest in India. Given the unmet demand, it is important they have professionals stepping in to manage the business to take it to the next level. Good people come when you pay the money…else you know what we get. Also, the salary is surely not as high as other companies which pay more than 10 crs as annual salary.
July 27, 2010 12:32 AM
Anonymous said…
5. It took grameen bank 30 yrs to reach 7 million poor borrowers. It took SKS 5 yrs. Purely because of the availability of funds…thanks for it being not just profitable but extremely profitable. Raising funds trhu donations and other social mediums will not have helped SKS or any MFI to reach out to so many poor in just 5 yrs. Remember SKS was an NGO first for 6 or 7 yrs before they converted to an NBFC (for profit model) they reached 2,00,000 clients in the first 7 yrs and 7 million in the next 5 yrs. Professionals and the money made the difference. See paying decent salaries does help. So get facts right. Stop having prejudice.

6. The borrowers who are poor surely dont have access to other sources of credit. Even if they have, it is surely higher than MFIs. the borrowers have surely grown out of their poverty in maximum of the cases. In some cases probably, wrong enterprise decision or other factors could have impacted them…doesnt mean you declare every one as failures. the exception case cannot be the main point of view. Look things with better perspective.

7. It will be great if RBI regulates this segment. the microfinance bill is pending for so many years and it only covers the NGo microfinance companies and not the for profit ones. Why? The for profit ones cover 90 per cent of the industry.

8. if the public sector banks were to marginalize microfinance institutions, it would have happened long time back. The entire concept of financial inclusion would not be happening after 60 yrs or independence. Microfinance if not the tool to eradicate poverty it is surely a tool to eradicate poverty. given the huge demand supply gap in credit supply to the poor, the government has to be serious about amazing schemes and more than that amazing delivery mechanism which will reach the poor. given our politicians…distant dream for sure…not something i see in the next 2 decades…financial inclusion can happen when the system works together. One SKS or the MFI industry alone cannot be the change…it can only help in the change to a great extent.

9. Very baseless point for one to take decision on. Please elaborate on how this impacts. it has surely created wealth for its investors. I am sure all of them will have a happy walk to the bank. Its ok…the poor have more access to funds while investors profit from it…atleast it has helped the poor that extra fund. As an investor, i would not have put my money in charity…i would look at returns…sks has given that to sequioa or kismet or Narayan Murthy or Sores or vinod khosla…why would they invest otherwise…ask NM or vinod khosla if they would give put all their investment funds in to social / charitable funds…they dont run foundations 🙂

10. Just because, a couple of MFIs have played dirty (predominantly small ones as they have pressure of collections) it is not fair to paint the entire industry with the same brush. If i were to take your case, i will have to suspect all stocks of software companies given the RAJU scam.

WOW…you are a piece apart …look at the positive side of the MFI industry…the moral policing would not help the poor to get access to credit. If i am not wrong, none of the promoters have quit in this IPO. All of them have sold a part and the remaining has been put on a 3 yr lock in…i am sure, the seriousness in the business does exist.
July 27, 2010 12:32 AM

Reply

facts right July 27, 2010

Prasanna…agreed you seem to act like one messiah…please try and get to understand if the other credit sources really are available to the poor. If you were to ask me…i lived my past in these areas and i know how difficult it is to access credit. the Patel (moneylender) in our village would charge interst based on the urgency of my need…the higher the level of urgency…the higher the interest rate…at times we have paid Rs,10,000 interest for one week for a 25,000 loan…thats how the system works in the rural areas….MFIs are a lot better…atleast there is a fixed rate of interst. Banks dont reach half these guys nor the government schemes…if the AP govt. SHG schemes were so successful…why did the women choose to support MFIs and not the government.

Reply

k a prasanna July 27, 2010

Reply to facts right – 1. It is sin to charge even 28% interest on the money lent to the poor.
2. Grameena bank model is different – there is no greed.
3. The bottom line is promoters are interested in quick buck. MFI is only a mode for that.
4. Growth % has nothing to do with ethics of business.
5. It is possible to raise funds through NGO/donations to fund expansion. For that reason one need not be a loan shark.
6. Yes agreed, borrowers are poor and have no access to credit. That does not mean that they are to be exploited.
7.RBI/Government will intervene. That will happen sooner than most think. I reiterate, these MFIs will crumble.
8.Yes that will happen. Do you know the number of branches opened by PSU banks in the last fiscal?
9. That is the point I am stressing. There is no real love for the poor. Promoters are interested in maximizing their wealth. Nothing else.
10.MFIs who charge interest in excess of 18% p.a.are following predatory practices.

Reply

k a prasanna July 27, 2010

Reply to facts right – Just because you paid huge interest to money lenders in the past, it does not mean you a have right to charge usurious rates on the money lent to the hapless poor. Banks will reach them in due course.

Reply

k a prasanna July 27, 2010

IPO – SKS MICRO FINANCE LIMITED- UNREALISTIC PREMIUM – DIFFICULT TO SEE LISTING GAINS – AVOID.

The company has fixed the price band at Rs 850-985 for the IPO, which is slated to open on 28-07-10. The company is proposing to issue1, 67,91,579 Equity Shares of Rs. 10 FV, including the offer for sale of 93,46,256 shares.

The company earned a net profit of Rs 173.95cr for FY10. On the post issue capital of Rs 71.97cr, the EPS comes to around Rs20/- At the upper price band, the company is demanding a valuation of almost 50 times its FY 10 earnings. For an NBFC, which has limited period of history and no dividend track record, the valuation is very very much stressed.

APART FROM IRRATIONAL PRICING, CONSIDER THE FOLLOWING BEFORE TAKING THE INVESTMENT DECISION:

1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.

2. Unsustainable business model: The business model will not sustain in the long -run.

3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.

4. Look at the salary of top executives:

Suresh Gurumani – Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula – chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
The irony is they are trying to eradicate poverty.

5. Mohd. Yunus says – “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”

6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.

7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.

8. Financial inclusion initiatives taken by the public sector banks/government will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.

9. The average cost of acquisition of shares by promoters is less than Rs50/-

10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.

RECOMMENDATIONS: CLEAR NO.

READ FULL ARTICLE IN – FIRST CHOICEIPOANALYSIS.COM

Reply

Previous post:

Next post: