SKS Microfinance's Q4 net profit up by whopping 49.50%; Firstcall recommends buy

1. CMP 442.00
Target Price 500.00
ISIN: INE180K01011
MAY 7th
2015
SKS MICROFINANCE LTD
Result Update (PARENT BASIS): Q4 FY15
BUY
Index Details
Stock Data
Sector Finance
BSE Code 533228
Face Value 10.00
52wk. High / Low (Rs.) 525.00/225.40
Volume (2wk. Avg.) 326000
Market Cap (Rs. in mn.) 55821.51
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A FY16E FY17E
Net Sales 7239.57 8361.70 9448.72
EBITDA 4771.73 5606.33 6383.82
Net Profit 1876.65 2268.11 2656.31
EPS 14.86 17.96 21.03
P/E 29.75 24.61 21.01
Shareholding Pattern (%)
1 Year Comparative Graph
SKS MICROFINANCE LTD S&P BSE SENSEX
SYNOPSIS
SKS Microfinance Limited was founded in 1997, a
non-banking financial company - micro finance
institution, provides micro finance services.
In Q4 FY15, net profit jumps to Rs. 405.36 mn
against Rs. 271.15 min in Q4 FY14, an increase of
49.50% y-o-y.
The company’s net sales for the 4th quarter of FY15
rose by 42.90% and recorded to Rs. 1976.19 mn
from Rs. 1382.96 mn, when compared with the prior
year period.
During Q4 FY15, Operating profit is Rs. 1330.02 mn
as against Rs. 831.87 mn in Q4 FY14, grew by
59.88%.
EPS of the company stood at Rs. 3.21 a share during
the quarter as against Rs. 2.51 over previous year
period.
In Q4 FY15, loan disbursements registering a 58%
year-on-year increase of Rs. 24940 mn as against
Rs.15440 mn in Q3 FY15 (Rs. 15800 mn in Q4 FY14).
As of March 31, 2015, SKS Microfinance Ltd had a net
worth of Rs. 10460 mn and capital adequacy of
31.7%. Cash and cash equivalents stood at Rs. 14370
mn.
The Company issued Non-Convertible Debentures
worth Rs. 2000 mn (rated ‘A+’) and commercial
paper worth Rs. 2250 mn (rated ‘A1+’) in FY15.
In FY15, the Company completed securitization
transactions worth Rs. 15590 mn rated as ‘AA (SO)’.
Net Sales and PAT of the company are expected to
grow at a CAGR of 22% & 56 over 2014 to 2017E
respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
SKS Microfinance Ltd 442.00 55821.51 14.86 29.75 5.33 0.00
SREI Infrastructure Finance Ltd 40.40 20324.70 1.81 22.32 0.73 5.00
PTC India Financial Services Ltd 52.85 29706.10 3.41 15.50 2.20 10.00
Cholamandalam Investment and Finance Co. Ltd 585.90 84212.60 30.28 19.35 3.67 35.00

2. QUARTERLY HIGHLIGHTS (PARENT BASIS)
Results Updates- Q4 FY15
SKS Microfinance Limited was founded in 1997; non-
banking financial company - micro finance institution,
provides micro finance services has reported its financial
results for the quarter ended 31 March, 2015.
The company’s net profit jumps to Rs. 405.36 million against Rs. 271.15 million in the corresponding quarter
ending of previous year, an increase of 49.50%. Revenue for the quarter rose by 42.90% to Rs. 1976.19 million
from Rs. 1382.96 million, when compared with the prior year period. Reported earnings per share of the
company stood at Rs. 3.21 a share during the quarter as against Rs. 2.51 over previous year period. Profit before
interest, depreciation and tax is Rs. 1330.02 million as against Rs. 831.87 million in the corresponding period of
the previous year.
Break up of Expenditure
Months MAR -15 MAR -14 % Change
Net Sales 1976.19 1382.96 42.90
PAT 405.36 271.15 49.50
EPS 3.21 2.51 28.09
EBITDA 1330.02 831.87 59.88
Break up of Expenditure
(Rs in millions)
Q4 FY15 Q4 FY14
CHNG
%
Employee Benefit
Expenses
600.28 430.74 39%
Dep & Amortization Exp
11.20 10.27 9%
Other Expenses
224.63 196.15 15%

3. Latest Updates
• The Company’s portfolio excluding the states of Andhra Pradesh and Telangana registered a 47% year-on-
year increase to Rs. 41710 mn in Q4 FY15 from Rs. 28370 mn in Q4 FY14 (31% quarter-on-quarter growth -
Rs. 31950 mn in Q3 FY15).
• In Q4 FY15, loan disbursements registering a 58% year-on-year increase of Rs. 24940 mn as against
Rs.15440 mn in Q3 FY15 (Rs. 15800 mn in Q4 FY14).
• As of March 31, 2015, SKS Microfinance Ltd had a net worth of Rs. 10460 mn and capital adequacy of 31.7%.
Cash and cash equivalents stood at Rs. 14370 mn.
• In Q4-FY15, cost-of-interest-bearing liabilities reduced by 1.1% from 12.9% in Q3-FY15 to11.8% in Q4-FY15.
• In FY15, the Company completed securitization transactions worth Rs. 15590 mn rated as ‘AA (SO)’.
• The Company issued Non-Convertible Debentures worth Rs. 2000 mn (rated ‘A+’) and commercial paper
worth Rs. 2250 mn (rated ‘A1+’) in FY15.
• The total disbursement in FY15 increased by 44% to Rs. 68910 mn as against Rs. 47880 mn in FY14.
COMPANY PROFILE
SKS Microfinance Limited was founded in 1997, a non-banking financial company - micro finance institution,
provides micro finance services to women in the rural areas in India who are enrolled as members and organized
as joint liability groups. It offers income generation and mid-term loans to self-employed women to support their
business enterprises, such as raising livestock, running local retail shops, tailoring, and other assorted trades and
services. The company also provides mobile loans for financing mobile phones and telephone services; housing
loans for the construction of new houses, or improvement and extension of existing houses; and gold loans
secured by gold jewelry to meet short term liquidity requirements. In addition, it provides life insurance
products. The company is among the largest microfinance companies in India with presence across 16 states
covering 1,00,000 villages.
SKS distributes small loans that begin at Rs. 2,000 to Rs. 12,000 (about $44-$260) to poor women so they can
start and expand simple businesses and increase their incomes. Their micro-enterprises range from raising cows
and goats in order to sell their milk, to opening a village tea stall.
The company uses the group lending model where poor women guarantee each other’s loans. Borrowers
undergo financial literacy training and must pass a test before they are allowed to take out loans. Weekly

4. meetings with borrowers follow a highly disciplined approach. Re-payment rates on our collateral-free loans are
more than 99% because of this systematic process. The company offers micro-insurance to the poor as well as
financing for other goods and services that can help them combat poverty.
It is committed to creating a distribution network across underserved sections of society in order to provide easy
access to the full portfolio of microfinance products and services. It also looks at using this network to add value
to the lives of its members by providing quality goods and services that our members need at less than market
rates.
SKS delivers microfinance through a joint group liability model. The villages are selected on the basis of a
thorough survey and consequently sangam meetings and group recognition tests conducted.
The company firmly believes that Technology is one of its biggest differentiator in the industry. It has designed
and deployed a web-based Business Intelligence portal using state-of-art technology and a highly flexible and
scalable platform to support the business growth and operations and has also built an integrated and encrypted
MPLS communication network encompassing a world class Data Centre delivering mission critical services and
enhancing collaboration across the organization.

5. FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March 31, 2014 -2017E
FY14A FY15A FY16E FY17E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 1082.13 1262.93 1262.93 1262.93
Reserves and Surplus 3510.00 9201.63 9661.71 10048.18
1. Sub Total - Net worth 4592.13 10464.56 10924.64 11311.11
2. Share application money pending allotment 0.00 0.06 0.08 0.10
Non Current Liabilities
Long term Borrowings 3002.07 10572.21 13215.26 15726.16
Long term Provisions 1862.15 127.19 73.77 45.44
3. Sub Total - Non Current Liabilities 4864.22 10699.40 13289.03 15771.60
Current Liabilities
Short term Borrowings 3323.51 6096.28 7559.39 8920.08
Other Current Liabilities 11806.55 19271.89 23588.79 27693.24
Short Term Provisions 385.55 455.07 514.23 575.94
4. Sub Total - Current Liabilities 15515.61 25823.24 31662.41 37189.26
Total Liabilities (1+2+3) 24971.96 46987.26 55876.16 64272.07
APPLICATION OF FUNDS
Non-Current Assets
Fixed Assets
Tangible assets 65.86 51.51 43.78 45.80
Intangible assets 30.91 38.02 46.00 52.90
Intangible assets under development 15.04 12.45 14.32 15.75
a) Sub Total-Fixed Assets 111.81 101.98 104.11 114.45
b) Non-current investments 2.00 2.00 2.00 2.00
c) Long Term loans and advances 2292.69 2448.46 2570.88 2673.72
d) Other non-current assets 328.51 1252.26 1728.12 2194.71
1. Sub Total - Non Current Assets 2735.01 3804.70 4405.11 4984.88
Current Assets
Trade receivables 51.07 34.17 37.59 40.59
Cash and Bank Balances 6397.08 15367.73 19209.66 22475.31
Short-terms loans & advances 15235.01 27135.52 31488.34 35954.93
Other current assets 553.79 645.14 735.46 816.36
2. Sub Total - Current Assets 22236.95 43182.56 51471.05 59287.19
Total Assets (1+2) 24971.96 46987.26 55876.16 64272.07

6. Annual Profit & Loss Statement for the period of 2014 to 2017E
Value(Rs.in.mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 5189.92 7239.57 8361.70 9448.72
Other Income 258.44 791.09 1015.76 1168.12
Total Income 5448.36 8030.66 9377.46 10616.85
Expenditure -2566.87 -3258.93 -3771.13 -4233.03
Operating Profit 2881.49 4771.73 5606.33 6383.82
Interest -2142.21 -2790.45 -3220.18 -3596.94
Gross profit 739.28 1981.28 2386.16 2786.88
Depreciation -40.76 -45.61 -50.17 -54.69
Profit Before Tax 698.52 1935.67 2335.98 2732.19
Tax 0.00 -59.02 -67.87 -75.88
Net Profit 698.52 1876.65 2268.11 2656.31
Equity capital 1082.13 1262.93 1262.93 1262.93
Reserves 3510.01 9201.63 9661.71 10048.18
Face value 10.00 10.00 10.00 10.00
EPS 6.46 14.86 17.96 21.03
Quarterly Profit & Loss Statement for the period of 30th Sept, 2014 to 30th June, 2015E
Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E
Description 3m 3m 3m 3m
Net sales 1901.08 1844.14 1976.19 2094.76
Other income 109.15 224.76 285.82 377.28
Total Income 2010.23 2068.90 2262.01 2472.04
Expenditure -760.50 -860.01 -931.99 -980.35
Operating profit 1249.73 1208.89 1330.02 1491.70
Interest -670.78 -786.89 -854.44 -748.49
Gross profit 578.95 422.00 475.58 743.21
Depreciation -11.43 -11.43 -11.20 -12.59
Profit Before Tax 567.52 410.57 464.38 730.62
Tax 0.00 0.00 -59.02 -46.04
Net Profit 567.52 410.57 405.36 684.58
Equity capital 1259.97 1260.89 1262.93 1262.93
Face value 10.00 10.00 10.00 10.00
EPS 4.50 3.26 3.21 5.42

7. Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 6.46 14.86 17.96 21.03
EBITDA Margin (%) 55.52% 65.91% 67.05% 67.56%
PBT Margin (%) 13.46% 26.74% 27.94% 28.92%
PAT Margin (%) 13.46% 25.92% 27.12% 28.11%
P/E Ratio (x) 68.47 29.75 24.61 21.01
ROE (%) 15.21% 17.93% 20.76% 23.48%
ROCE (%) 26.77% 17.75% 17.84% 17.91%
Debt Equity Ratio 1.38 1.59 1.90 2.18
EV/EBITDA (x) 16.57 11.97 10.24 9.08
Book Value (Rs.) 42.44 82.86 86.50 89.56
P/BV 10.42 5.33 5.11 4.94
Charts

8. OUTLOOK AND CONCLUSION
At the current market price of Rs. 442.00, the stock P/E ratio is at 24.61 x FY16E and 21.01 x FY17E
respectively.
Earnings per share (EPS) of the company for the earnings for FY16E and FY17E are seen at Rs. 17.96 and Rs.
21.03 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 22% & 56% over 2014 to 2017E
respectively.
On the basis of EV/EBITDA, the stock trades at 10.24 x for FY16E and 9.08 x for FY17E.
Price to Book Value of the stock is expected to be at 5.11 x and 4.94 x respectively for FY16E and FY17E.
We expect that the company surplus scenario is likely to continue for the next three years, will keep its
growth story in the coming quarters also. Hence, we recommend ‘BUY’ in this particular scrip with a target
price of Rs. 500.00 for Medium to Long term investment.
INDUSTRY OVERVIEW
India’s gross domestic savings (GDS) as a percentage of gross domestic product (GDP) has mostly remained
above 30 per cent since 2004 and stood at 32.7 per cent in FY13. It is expected that the domestic savings in India
will reach US$ 1,272 billion by 2019 from US$ 683 billion in 2013.
The financial services sector consists of the capital markets, insurance sector and non-banking financial
companies (NBFCs). The asset management industry in India is among the fastest growing in the world. Total
asset under management (AUM) of the mutual fund industry clocked a compound annual growth rate (CAGR) of
15.9 per cent over FY07-14 to reach US$ 150 billion.
The Government of India has taken various steps to deepen the reforms in the capital markets, including
simplification of the IPO process which allows qualified foreign investors (QFIs) to access the Indian bond
markets. The composite cap on foreign direct investment (FDI) in the insurance segment has been increased to
49 per cent from 26 per cent.
Market Size
The size of banking assets in India reached US$ 1.8 trillion in FY13 and is expected to touch US$ 28.5 trillion by
FY25. Information technology (IT) services, the largest spending segment of India's insurance industry at Rs
40000.00 mn (US$ 649.31 million) in 2014, is projected to continue strong growth at 16 per cent.

9. The total market size of the insurance sector in India was US$ 66.4 billion in FY13 and is expected to breach the
US$ 350–400 billion mark by 2020.
Investment corpus in India's pension sector could cross US$ 1 trillion by 2025, following the passage of the
Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII–EY on
Pensions Business in India.
India’s foreign exchange (Forex) reserves touched US$ 320.56 billion on July 25, 2014, which was just US$ 23
million less than the all-time high of US$ 320.79 billion achieved on September 2, 2011.
Road Ahead
There is a lot of scope for growth in the financial services sector with the total wealth holdings by High Net
Worth Individuals (HNWI) in India, which is estimated at US$ 584.5 billion, projected to reach US$ 3 trillion by
2020. Also, there is potential in the rural credit sector which can be tapped by ensuring timely loans that are
critical to the agricultural industry.
Disclaimer:
This document is prepared by our research analysts and it does not constitute an offer or solicitation for the
purchase or sale of any financial instrument or as an official confirmation of any transaction. The information
contained herein is from publicly available data or other sources believed to be reliable but we do not represent that
it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be
in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for
the recipients’ investment decision based on this document.

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