UBS Global Research
SKS Microfin (Buy)
CMP: ₹562.85
Target: ₹650
SKS Microfinance’s Q1FY16 results were significantly above our estimates driven by strong loan growth. Disbursement growth was very strong at 105 per cent y-o-y and was driven by 63 per cent y-o-y growth in number of loan disbursed and increasing share of higher ticket size loans (from 2.7 per cent in Q1FY15 and 16 per cent in FY15 to 23.8 per cent in Q1FY16). Loan growth was also robust at 72 per cent y-o-y (15 per cent q-o-q) and was partly driven by higher ticket size loans which are also longer in tenure. Margins on AUM was stable y-o-y. Income from fee initiatives increased by 85 per cent y-o-y and 39 per cent q-o-q supported by higher cross-sell to existing clients.
We like SKS due to its strong growth potential and high ROEs. Banking licence, if granted, could have near-term headwinds due to high dilution, but we remain very positive on growth in the longer term. Our revised target of ₹650 is based on our residual income model and implies 4.9x FY17E P/BV and 20.5x FY17E P/EPS.