SBI Capital Markets India’s leading investment bank and project advisor has initiated coverage on SE Investments (SEIL Microfin) a listed microfinance company.Some highlights from their equity report on S E Investments is given below
Buy: Rs 49
Target: Rs 60
SE Investments Ltd is one of the leading companies in the category ‘A’ classified NBFC by RBI specialized in micro finance and other lending activities viz hire purchase, personal loan, loan against property to both individuals and corporates. The company has a dominant presence in the Northern part of the country specially NCR. We expect micro finance activities to continue to be a lucrative business owing to easy access to small loans and the low penetration of banking systems in India. The company also offers very lucrative deposit schemes for individuals with an average interest rate of over 12.5 percent. We initiate coverage on stock with ‘BUY’ rating
The company has a balanced mix of corporate and individual loan portfolios where the average yield is between 18-28 percent. The loan amount for micro finance ranges between Rs 2,000-50,000, is dominated by women and has very negligible number of defaults. The corporate loan portfolio is classified into business loans, which is secured in nature with average maturity period of 12-36 months.
The average default rate for entire loan portfolio is less than 1 percent of gross outstanding loan and SE investment follows very strict norms of bad debt treatments. The company has various collection schemes viz daily, weekly and monthly on reducing balance where the average yield is as high as 28 percent.
The company has further plans to expand its loan portfolio in micro finance and corporate loan following its GDR issue where it has raised Rs 176 crore, resulting into a 5 fold expansion in net worth.
Huge scope for credit expansion:
According to NABARD, the current micro credit by micro financial institutions is at Rs20,000 crore whereas the total micro credit demand is estimated at Rs2.4 lakh crore, creating a huge gap and scope for exponential growth in micro credit. Majority of this demand is met through local money lenders charging very high interest rate up to 60 percent pa thus encouraging MFIs to further penetrate through low cost loan offerings.
Till date, a large number of poor people remain outside the formal banking system. The rural penetration in banks is less than 18% and the existing banking policies are far from meeting their needs. About 75 million households live below the poverty line and the annual credit demand by the poor exceeds Rs 70,000 crores, out of which the cumulative disbursements is about Rs. 8000 crores. Only 5 % of rural poor have access to microfinance and the share of Microfinance in total credit of Indian Banking system is less than 1%. The Indian micro finance industry (MFI) would cross 11 crore borrowers and Rs 135,000 crore ($30 billion) in loan portfolio by 2014.
We have valued company on P/B (x) multiple. At current price of Rs49 the stocks available at 2.6x and 2.2x at its FY11E and FY12E earnings respectively. We recommend a buy on the stock with price target of Rs60 by discount FY11E BV of Rs18.7 by 3.2x thus implying an upside potential of 22 percent.
Download the complete report on S E Investments by SBI Capital Markets below