SKS shares crash, employees lose out

In August 2010, when SKS Microfinance shares made their debut on domestic bourses, the mood among its employees was jubilant. The high-profile initial public offering (IPO) of India’s biggest microfinance lender, which was priced at Rs 985 per share, was a hit among investors.

Several employees of SKS Microfinance became rupee millionaires on paper, thanks to shares allotted under the employee share purchase scheme (ESPS). Within weeks of listing, some of them rushed to sell part or the entire holding as the company’s stock price continued its upward march. On September 28, 2010, the stock climbed to Rs 1,490.70.

However, since then it has been a downhill journey for the stock. The value of shares held by SKS employees has come down by 78 per cent from the all-time high price and the paper wealth has largely evaporated. In fact, employees who were given shares at Rs 636 a share under ESPS in March 2010 are making notional losses.

On Friday, SKS Microfinance shares tanked nearly 20 per cent to close at an all-time low of Rs 331.30 on the Bombay Stock Exchange after analysts at JP Morgan cut their price target on the stock to Rs 200 from Rs 550 and retained underweight rating.

“We think the Andhra Pradesh portfolio is seeing more losses and the business model has weakened elsewhere, too,” said JP Morgan analysts in a note to clients. “Recent regulatory changes are not as positive as the street thinks. We fear that SKS may need more capital.” They added. JP Morgan analysts expect the company’s collection in Andhra Pradesh (AP) to fall to 25 per cent, triggering large write-offs in the current financial year.

Employees of SKS Microfinance are perturbed by the drubbing of their company’s stock price, but are confident it will recover after some time. “Apart from the crisis in AP, we are doing well in other 18 states,” said an SKS employee, who owns 1,500 shares of the company, on condition of anonymity.

On Friday, SKS reported a net loss of Rs 70 crore for the quarter ended March, compared with net profit of Rs 62.9 crore in the corresponding period last year. Income from operations during the three-month period fell 39.4 per cent from a year ago to Rs 171 crore. The micro-lender said higher provisioning during the quarter hit its earnings. Provisions and write-offs in January-March was at Rs 106 crore, up 617 per cent from a year earlier.

“We could have merely followed provisioning norms as per the Reserve Bank of India’s prudential norms, which would have resulted in profit for the fourth quarter. However, we took a conscious decision to adopt more stringent provisioning norms in pursuance of sector leadership role,” S Dilliraj, chief financial officer of SKS, said.