SKS Micro-finance is india’s largest micro-finance company which was butchered because of AP Govt’s Antics and what followed was a fall from 1500 to 50 rs. Now things have changed dramatically, and for good. The crisis in the micro-finance industry has been a blessing in disguise for this company. Because of the crisis, all the smaller players have been wiped out. The competition is gone, and only the top new players remain. SKS is the top player in this industry and there’s a wide yawing gap between SKS and the second position holder Spandana. In fact, SKS has been the only company to raise money successfully in last 12 months. SKS has gone on record saying that they do not need to raise equity for the next 3 yrs, their AP portfolio’s write-off is finished and also their non-AP portfolio is growing 50%. The recovery has also gone back to 99% now and this is a huge positive for the company.
In the last one week there has been renewed interest by the Govt (as evident from Mr. Jairam Ramesh and chidambaram’s comments) to improve the micro-finance state in india. This is going to give a huge fillip to the sector leader SKS. It is a genuine turnaround story. The business is back on track, infact its booming again. Govt. is back in supporting mode. With Govt’s move of direct subsidy transfer to bank accounts, Rural india is going to go for expansion and micro-finance industry is going to be the biggest beneficiary.
Nevertheless, there are small red-flags that investors should keep in their mind. Any change in the govt’s stand can again put SKS on a backfoot.
But, the chances of issues again cropping up has decreased big time. One, because RBI has issued guidelines for the sector, secondly, its still a priority sector, and thirdly, chances of Parliament passing the micro-finance bill is very high. Given all this and a market cap of just 1500 cr, this sector leader can easily quote at a market cap of around 1 lac crore by 2030. Markets have a habit of giving high valuation to turnaround companies and if that turnaround story happens to be a sector leader we have a winner in our hands.