JP Morgan reduces December 2011 target price for the microfinance major by 30 per cent.
SKS Microfinance, the country’s only listed microfinance institution (MFI), on Thursday said its collections in Andhra Pradesh were lower than normal due to transition from weekly to monthly collections and related changes in the management information system as well as passbook and member communication.
Under the Andhra Pradesh Micro Finance (Regulation of Money Lending) Ordinance, 2010, MFIs operating in the state are required to make only monthly collections.
SKS said the resultant reduction in collections in the state was likely to impact the company’s revenues and profitability, besides the asset quality of its state’s portfolio. Its normal recovery in the state amounted to Rs 28 crore a week.
SKS shares hit the lower circuit of Rs 639.45 on the Bombay Stock Exchange on Thursday, down 19.99 per cent from the previous close of Rs 799.25. on Thursday was the second straight day when the stock fell steeply.
The shares, which touched a high of Rs 1,490.7 on September 28, shortly after SKS went public, have been on a slide since October first week, when the company sacked its CEO and MD Suresh Gurumani.
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R Subrahmanyam, principal secretary, rural development, said the government brought the ordinance to protect the borrowers from coercive actions of MFIs and to ensure transparency.
For the week ended October 29, SKS could not conduct village meetings in 54 per cent of its centres in the state. However, for the week ended November 12, it held meetings in 97 per cent of the centres.
The MFI said it had been registered in all 23 districts. It held a sanctioned credit of Rs 2,500 crore, apart from receiving Rs 292 crore from seven banks, after the ordinance. The company disbursed Rs 1,048 crore in October. The collections from other states stood close to 99 per cent.
Meanwhile, the state government has filed a counter in the high court to the various petitions filed by the Microfinance Institutions Network, SKS and other MFIs against the ordinance.
JP Morgan reduces price target
JP Morgan on Thursday reduced its December 2011 target price for SKS Microfinance by 30 per cent to Rs 700. “We believe the headwinds for SKS and the MFI industry are still not over—we cut our estimates by 25-35 per cent for FY11-13 and reduce our price target by 30 per cent to Rs 700,” said the report.
According to JP Morgan, the stock is “still expensive at a one-year forward price-to-book value of 2.6x”. Despite Tuesday’s 12 per cent correction and the possibility of a technical bounce notwithstanding, we maintain our (still) contrarian underweight and don’t believe it’s too late to exit the stock, says the report.
JP Morgan has factored in the situation in Andhra Pradesh like drying up of disbursements, margin pressures from rising fund costs, lower yields & negligible securitisation and higher credit costs from one-time losses.