CARE assigns ‘CARE IPO Grade 4’ to the proposed IPO of SKS Microfinance Ltd
CARE has assigned a ‘CARE IPO Grade 4’ to the proposed IPO of SKS Microfinance Ltd (SKSML). ‘CARE IPO Grade 4’ indicates Above Average Fundamentals. CARE assigns IPO grades on a scale of Grade 5 to Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. CARE’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer.
Grading Rationale The grading reflects SKSML’s position as one of the largest players in the Indian micro finance industry having pan India operations with a well diversified portfolio. The grading takes into account track record of the promoters, experienced board of directors and strong management profile. The grading also takes into account good corporate governance practices adopted by the company including presence of various committees and independence of the board. The grading considers the strong financial position with healthy margins including good asset quality, comfortable capital adequacy ratio, comfortable liquidity position and access to diverse sources of institutional funding.
The grading also considers the strong industry growth in recent period with good prospects for future growth on account of large unmet potential demand. The grading is however moderated by company’s sensitivity to operational risk on account of large volume of cash transactions & decentralized operations spread across the country. Further, the grading also factors in the industry risks on account of any adverse change in government policies, low seasoning of the industry portfolio and asset quality risks on account of political/religious interventions. However some of these risks are mitigated due to the high diversification of SKSML’s asset portfolio.
SKSML is one of the largest players in the Indian micro finance industry, lending to women borrowers organised as joint liability groups. It was founded by Dr. Vikram Akula, who has more than 10 years of experience in the field of microfinance. SKSML was incorporated on September 22, 2003 under the Companies Act, 1956 and was registered as a non deposit taking non banking financial company (NBFC-ND) with the Reserve Bank of India (RBI) in 2005. It converted from a Private Limited to a Public Limited Company, with effect from May 20, 2009. As on March 31, 2010, major shareholders of the company include Sequoia Capital India II LLC, Sandstone Investment Partners I, Kismet Microfinance and SKS MBTs (mutual benefit trusts).
As on March 31, 2010, the company operated in 19 states with 2,029 branches covering 57 lakh active borrowers with total AUM of Rs.4,321 crore including assigned portfolio of Rs.1,384 crore. SKSML reported income of Rs.958 crore and net profit of Rs.174 crore for FY10. Reported capital adequacy ratio was comfortable at 28.5% as on March 31, 2010. SKSML has been able to raise funds (both equity and debt) at regular intervals during the last few years. It has plans of mobilizing funds through initial public offering (IPO) in the current financial year which will make it the first MFI to be listed in India and the third pure MFI in the world to mobilize funds through IPO.