Slide 1: Satin Creditcare Network Ltd - BUY
Initiating Coverage Satin Creditcare Network Ltd - BUY June 22, 2016 Smooth as Satin! And the dream run continues… CMP (Rs) 434 12-mts Target (Rs) 530 Upside 22.1% Satin is a fast growing MFI with a leading share in large markets of Stock data Sector: Financials Northern India. Although this is tant
Slide 2: Satin is the fifth largest MFI in India
Satin Creditcare Network Ltd. Satin is the fifth largest MFI in India Chart 2: Expansion of network driving customer outreach Satin Creditcare Network Ltd is North India’s largest and India’s fifth Branches Borrowers (RHS) largest MFI with an AUM of Rs32.7bn as of FY16. The company caters to 500 1.9
Slide 3: Presence in states with low MFI penetration
Satin Creditcare Network Ltd. Chart 4: Presence in states with low MFI penetration but high potential Chart 5: Satin enjoys leading market share in key states 50 (%) 42.0 40 30 24.0 20.0 20 18.0 12.0 10 0 Punjab UP Bihar UTK MP Source: Company, MFIN, IIFL Wealth Research Chart 6: GLP mix by economic
Slide 4: Regulatory uncertainty wanes considerably in the sector
Satin Creditcare Network Ltd. Regulatory uncertainty wanes considerably in the sector loans to MFI sector. Cognizant of the instrumental role the sector played The MFI industry has done a full circle; after weathering phases of in financial inclusion, RBI liberalized guidelines for the sector in the
Slide 5: Extant RBI regulations for NBFC-MFIs
Satin Creditcare Network Ltd. RBI also made it mandatory for MFIs to share borrowers’ credit data with Table 1: Extant RBI regulations for NBFC-MFIs on key aspects Credit Information Companies (CIC) such as Highmark and Equifax. Parameter Regulation Consequently, these entities are privy to details
Slide 6: Large addressable market; no constraints on funding
Satin Creditcare Network Ltd. Large addressable market; no constraints on funding Table 2: State-wise MFI client penetration The demand for organized micro finance in India is unprecedented given MFI Clients Population Households Penetration the glaring under-penetration of the formal financial syst
Slide 7: Eight MFIs to convert into SFB; Satin diversifying regionally
Satin Creditcare Network Ltd. Eight MFIs to convert into SFB; this presents greater opportunities Satin is diversifying its franchise regionally to mitigate risks for incumbents Satin has high AUM concentration in the Northern part of India RBI’s strong confidence on the MFI industry was visible in
Slide 8: State diversification of AUM; new product financing
Satin Creditcare Network Ltd. Table 3: State diversification of AUM underway Recently introduced product financing and MSME financing FY16 Share FY13 Share FY13 ‐ FY16 In October 2015, Satin started solar lamp financing for its borrowers with State GLP (Rs mn) (%) (%) (CAGR %) the motive of improvin
Slide 9: Average loan disbursed per customer rising; capital raise
Satin Creditcare Network Ltd. In April 2015, RBI significantly relaxed norms for annual household Chart 11: Average loan disbursed per customer has been rising income, maximum loan amounts, and overall indebtedness of the 30,000 borrower. This has significantly enhanced the scope of growth for MFIs,
Slide 10: Probable rating upgrade to optimize margins
Satin Creditcare Network Ltd. Probable rating upgrade to optimize margins Headroom for improving productivity; investment in technology A relatively higher cost of borrowing at ~14.5% has been an impediment could preclude Opex/AUM ratio from improving materially to full realization of the 10% margin
Slide 11: Opex/Avg. AUM ratio and cost/income ratio
Satin Creditcare Network Ltd. Chart 15: Opex/Avg. AUM ratio has materially come-off Chart 17: Average ticket size (ATS) of loans higher for Satin 7.0 (%) GLP ATS Disbursement ATS 6.6 25,000 (Rs) 22,418 6.0 5.9 19,918 6.0 20,000 5.3 17,950 5.0 14,116 14,908 15,000 12,273 11,434 4.0 10,000 9,342 3.0 5
Slide 12: Asset quality has been robust
Satin Creditcare Network Ltd. Asset quality has been robust Chart 19: Satin’s PAR 90 portfolio negligible at the end of FY16 As has been the case with the industry, asset quality of Satin has been O/S Amount Borrowers robust underpinned by negligible default rates. While substantial higher 60.0 5,00
Slide 13: Profitability to improve; valuation to re-rate
Satin Creditcare Network Ltd. Profitability to improve; valuation to re-rate Table 4: Benchmarking with other large MFIs We expect Satin’s RoA to improve by 40bps over the next two years on Particular Equitas Ujjivan SKS Satin the back of a) optimization of margin cap b) little improvement in opex-
Slide 14: Financials
Satin Creditcare Network Ltd. Financials Balance sheet Income statement Y/e 31 Mar (Rs mn) FY15 FY16 FY17E FY18E Y/e 31 Mar (Rs mn) FY15 FY16 FY17E FY18E Equity Capital 254 315 365 365 Income from Operations 2,929 5,049 7,489 10,481 Preference Capital 60 0 0 0 Interest expense (1,775) (2,899) (3,995
Slide 15: Key Ratios
Satin Creditcare Network Ltd. Key Ratios Y/e 31 Mar (Rs mn) FY15 FY16 FY17E FY18E Growth matrix (%) Net interest income 82.0 86.3 62.5 53.1 Total op income 71.5 83.1 55.0 46.2 Op profit (pre‐prov) 96.6 76.5 62.5 54.6 Net profit 106.0 80.1 57.9 54.0 Advances 86.9 55.7 50.0 40.0 Borrowings 85.2 64.6 3
Slide 16: About IIFL Wealth Management Limited
ABOUT IIFL Wealth Management Limited IIFL Wealth Management Limited (hereinafter referred as IIFLW), a Company incorporated under Companies Act, 1956, is registered with SEBI as Portfolio Manager and as a Stock Broker. IIFLW is also registered with AMFI as a distributor of mutual funds. IIFLW provid
Slide 17: Research analyst disclosures
i) The Research Analyst/s engaged in preparation of this Report or his/her dependent relative; (a) does not have any financial interests in the subject company/ies mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the