SKS Microfinance Q3FY13 Result Review

SKS Microfinance, one of the Non Banking Finance Company (NBFC), finally came back into green after posting loss for seven consecutive quarters. The company posted profit of Rs 1.15 crore for Q3FY13 against a loss of Rs 427.74 crore same quarter last year.  The share of the company reacted positively to the results and is up by 3.8% in today’s (25/01/2013) trading session.

What helped company to post profit was sharp drop in the total expenses that is almost down by 90% on yearly basis to Rs 54 crore. The factor that supported this fall in expenses was sharp decline in provision and write off. The company provided provisions of Rs 359 crore for Q3FY12 and for the last quarter it was just Rs 0.28 crore. In addition to this company went through significant cost optimization with branch consolidation and headcount rationalisation.  Company brought down total number of branch from 2403 in Q3FY11 to 1298 in Q3FY13 and number of employees from 25735 to 11195 in the same period. 

The company returned to profit despite showing a decline in its topline, which dropped by two per cent to Rs 85.05 crore for the third quarter of FY13. The decline in the topline was mainly due to absence of the Andhra Pradesh (AP) portfolio that has been reduced to nil in Q2FY13. 

However, non-AP state the performance remained robust and core interest income grew by 16% on yearly basis to Rs 79 crore. The company’s loan disbursement rose by   14% from Rs 690 crore in Q2-FY13 to Rs 784 crore in Q3-FY13 as its non-AP portfolio grew by 9% from Rs 1372 crore in Q2-FY13 to Rs 1496 crore in Q3-FY13. Collection efficiency in 17 non-AP states continues to be robust at 99.8% (99.2% in Q2-FY13).

Currently shares of SKS Microfinance is trading at price to book value of around four times, which looks expensive but looking at the performance of the company, which returned in the profit earlier than the management guidance and strong growth in its non-AP business, we advise readers to hold the stock as of now.