SKS Microfinance IPO Valuations expensive say analysts

SKS Microfinance’s IPO price band of Rs 850-985 per share would allow SKS Microfinance to raise upto Rs 1,654 crore at the upper end of the price band.

This means the country’s largest microfinance firm SKS Microfinance is looking at a valuation of more than US$ 1.5 billion. SKS Microfinance’s public issue would catapult it to the top 25 most valuable financial services companies in India and it will be ahead of even big names like M&M Financial Services,Indian Overseas Bank and Federal Bank.sks microfinance ipo valuation

Several analysts spoke to the Mint newspaper about SKS Microfinance’s IPO Valuation and this is what they had to say –

“At Rs850 a share, the implied valuation for the firm is 3.8 times post-issue book value (net worth) and 35 times the earnings of fiscal 2010, which appears quite expensive.”

Pankaj Agarwal, analyst at the UK-based investment advisory firm Execution Noble.

“The pricing seems to be on the higher side,”

Tejas Doshi, vice-president,Sushil Financial Services Ltd.

“Doubtlessly, it is an expensive issue, given the risks and uncertainty associated with the microfinance industry”.

Apurva Shah, head of research at Prabhudas Lilladher Pvt Ltd.

SKS Microfinance IPO Valuation – Pre-IPO Equity Research report summary by Execution Noble

SKS Microfinance is the biggest micro finance institution in India and provides small loans (sub-$500) to the poorest of the poor in India who earn less than $3 per day.

SKS Microfinance had an asset size of Rs. 35 bn (~$780 mn as on Sep’09) and with market share of ~12%.

70% of the company’s outstanding credit is concentrated in five states with the highest exposure of 29% being in Andhra Pradesh.

SKS Microfinance’s loan book has grown at a CAGR of ~150% over FY07-10, whilst net revenues and net profits have grown at a CAGR of ~150% and ~270% respectively over the same period.

The gross NPA ratio was ~0.33% of loans outstanding at the end of Sep’09 with capital adequacy ratio being ~25% (vs a regulatory requirement of ~15%).

SKS Microfinance generated an ROA of 3.9% and an ROE of ~18% in FY09.

The company had ~1,600 branches, 27K employees and ~5.3 mn customers at the end of Sep’09.

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