Credit Suisse maintained ‘Outperform’ rating on SKS Microfinance shares with target price of Rs 610. The management of SKS Microfinance expressed confidence of sustaining around 50 per cent loan growth over a 2-3 year time frame, compared to 93 per cent growth currently. New customer addition and rising ticket sizes would be the key drivers of growth. While employee additions could track borrower growth, branch growth could be subdued.
In the past one year, the share price of SKS Microfinance outpaced benchmark BSE Sensex as the share price of the company gained 11.25 per cent till April 5, whereas BSE Sensex plunged 12.70 per cent during the same period.
The company currently has three well tested cross-sell products (mobiles, solar lamps and sewing machines to some extent), which currently drive around 7-9 per cent of earnings. According to Credit Suisse, a few more products are in the trial stage, and the company appears on track to hit 20 per cent contribution from cross-sell.
SKS management indicated comfort with the stated target of 50 per cent loan growth for the longer term (current loan growth rate is 93 per cent). The drivers of growth would be customer base (over 20 per cent), larger ticket sizes (10-15 per cent inflation) and higher share of longer tenure loans. Management expects to grow employee base in line with the number of borrowers, ie, no operating efficiency being factored into in spite of increasing use of technology in the business.
SKS Microfinance sees the next round of capital raising by the end of 2016. The company usually raises capital with a two-year view. SKS recently got the second-highest ranking among NBFCs in an internal RBI rating.
For the quarter ended December 2015, the company reported a net profit of Rs 79.50 crore, up 93.63 per cent, against Rs 41.06 crore in the same quarter last year year.
Credit Suisse in a research report said, “We continue to stay positive on SKS given its growth and earnings per share (EPS) visibility is amongst the highest in the sector.”