1. vs vs

2. Agenda
Satin Credit Care
Equitas Holdings
Ujjivan Financial Services

3. Satin Credit Care 5th largest MFI in India.
Started operations in 1990 with Individual Lending and Small Business Loans.
Initially listed on Delhi, Jaipur & Ludhiana exchanges in Listed on BSE, NSE & CSE in 2015.
AUM: INR ~2500 Cr.
Presence in 16 states across India.
Primary focus on North & Central regions & NO exposure to southern states.

4. Highlights: AUM had grown at a CAGR of 88% over FY12-FY15.
And management expects the outperformance to continue with 50+% CAGR for the next 3 years.
Customer base has grown 3x over FY13-FY16(9m) & now stands at 1.6mn.
JLG portfolio accounts for >95% of total loan portfolio

6. State wise mix of Loan Portfolio
The company plans to open ~100 branches every year.
Going forward, management expects ticket size to contribute 10-15% to loan growth and the balance to come from increased penetration in its focus markets.
State wise mix of Loan Portfolio
The geographical presence of Satin in the low penetrated states of India, will gives us a long runway for growth.

7. Although North India continues to form a majority of the loan book, the dependence on a few states is steadily coming down.
The share of the top 2 states, Uttar Pradesh and Madhya Pradesh, which formed 72% of its GLP in FY13, has come down to 59% in H1FY16.
The Micro Finance penetration of Northern states is at 6-12% as compared to 20-24% for Sothern states:

8. How Satin is getting funded?
Satin has lending relationships with 59 lenders, which is the highest in the MFI space.
Public Banks: 18
Private Banks: 12
Foreign Banks: 5
NBFC’s: 15
Foreign Institutions: 9
The company’s credit profile is currently rated BBB+ by CARE and has been upgraded for two consecutive years.
Term loan borrowing is at 14.5% interest rate (on a higher side).
Satin is trying to bring down the cost of borrowing, by changing its borrowing through NABARD & MUDRA.
It recently raised Rs 1bn from NABARD at 11.5% and Rs 350mn from MUDRA at 10.5%.

9. Satin is the first MFI to receive funding from MUDRA.
Opex / AUM is coming down continuously from 13.5 in FY11 to 6.5 in H1FY16
Business Correspondent Services:
Operates through a group company – Taraashna Services Private Limited, which shares 10% of its gross receipts with Satin.
Has partnered with two banks (Ratnakar Bank and Yes Bank) and one NBFC (Reliance Capital).
Presently has operations in 5 states - MP , Rajasthan, Gujarat, Bihar and Chhattisgarh with 99 branches

10. Equitas Holdings
Equitas Holdings is a Chennai based diversified financial services, having 3 subsidiaries:
Equitas Micro Finance (53.5% of AUM)
Equitas Finance (29.3%)
Equitas Housing Finance (4.5%)
Market have a soft corner for NBFC’s based out of Chennai: Repco Home Finance, Sundaram Finance, Shiram Transport Finance etc.
Fourth largest MFI in India, in terms of AUM (INR 5500 Cr)
Consolidated AUM of EHL has grown at a strong pace of 43.6% CAGR in FY11-15.
In addition, the company plans to introduce other financing products like loan against gold jeweler

11. Reducing dependence on microfinance:
Equitas has successfully diversified its business.The share of microfinance in terms of its total AUM has declined to 53% in 9MFY2016 from 100% in FY2011, while that of vehicle finance and MSE has risen to 42.5% from nil over the same period.

12. Important to Note:
The past AUM growth is more because of Vehical Finance Arm than the Micro Finance Arm.
Micro Finance growth was sluggish (when compared to Industry average of 46% during the same period). But the real booster for Equitas Holdings came from Vehicle Finance Arm which grown at 134% CAGR from FY12-till date.

13. Pros & Cons of having a SFB License:
Positives:
SFB will have access to low cost funds via deposits and even borrowing costs can be reduced further via NCDs and Commercial Papers.
It can also start other retail loans at par with other banks.
Negatives:
The initial expenses associated with being a bank as new processes will have to be implemented.
SFB will have to comply with CRR and SLR requirements of the RBI guidelines.
These may impact the overall NIM and ROA during the initial 2-3 years.
Note: Equitas doesn’t have any problem in meeting 75% Priority Sector Lending of Loan book. Because, its entire book is classified as PSL.

14. How is Equitas get funded ?
The Company has over the years tilted its borrowings mix more in favor of lending from banks and reduced its exposure to Non Convertible Debentures.
During the year, EFPL’s credit rating improved with CARE upgrading long term rating of EFPL from BBB+ to A-

15. Key risks and concerns:
Once the conversion to SFB commences, the company will have to incur large expenses in the early stages on recruiting staff, technology, etc. This could impact the company’s profitability and return ratios
Concentration in the state of Tamil Nadu:
Approximately 60% of its overall portfolio is in the state of Tamil Nadu. This exposes Equitas to the risks & rewards of being overly dependent on a single state.
Example: Repco Home Finance
Rising NPAs vehicle finance book:
NPAs have increased to 3% for Equitas Finance subsidiary. Consolidated Net NPA at 0.15% of total book.

16. Ujjivan Financial Services
Ujjivan Financial Services Limited (“Ujjivan”) in 2004 at Bengaluru, Karnataka.
Total number of operational states: 24
Branches: 470
Ujjivan follows both the Joint group lending and individual lending models, with the former constituting 90% of its portfolio but set to attain saturation in southern states.
Hence it targets to increase Individual lending share from 10% currently to 40% of AUM by FY19.
AUM has grown at 50% CAGR & PAT increased at a 61% CAGR over FY11-FY15.
It is one of the most efficient borrowers with average cost of borrowings at 12.7% (Satin avg borrowing is at 14.5 as discussed above)

17. OTHER NON- CREDIT OFFERINGS
Top three states, viz. Karnataka, West Bengal and Maharashtra, form ~45% of its portfolio, with exposure to Karnataka the highest at 17%.
(Please visit again the above image which shows MFI penetration in India. All the 3 states Karnataka, West Bengal & Maharastra are already well being penetrated).
OTHER NON- CREDIT OFFERINGS
In addition to the loan products, the company also offer life insurance to the customers through their partnership with insurance providers such as Bajaj Allianz Life Insurance Co. Ltd., Kotak Mahindra Old Mutual Life Insurance Ltd and HDFC Standard Life Insurance Co. Ltd.

18. Robust technology driven operating model:
Being HQ at Bangalore, looks like Technology is in their DNA.
The company focuses on cost-effective and IT support into their operations. They use IBM’s private cloud resilience services to functioning of their business operations. IBM has dedicated infrastructure for Ujjivan services.
The company introduced tablets and mobiles in offices and the field (Satin is also doing the same in Punjab. Their it is trying to go as much paper less as possible).
The usage of the IBM Filenet database management system has eliminated the movement of physical documents for loan processing, and automated credit rule checking and the extraction of credit bureau reports
Equifax Credit Information Services Pvt. Ltd
High Mark Credit Information Services Pvt. Ltd
Bajaj Finance is doing this automated credit rule checking currently for most of their Consumer Loans.

19. Also launched Call centre services (outsourced)
All these activities are showing its fruits.
Customer retention rates have improved from 73% in Financial Year 2010 to 88% as of December 31, 2015

20. How is Ujjivan getting funded ?
There are some reputed PE investors backing Ujjivan. And they have raised 6 rounds of funding till date.
Ujjivan cost of borrowing as on date stands at 12.7% (one of the best in Industry).
CRISIL credit rating is at A-

21. Key Risks:
Very low promoter holding of 1% (far less than industry average of 8%).
Catering mainly to urban poor only. The space which has already got saturated.
Once the conversion to SFB commences, the company will have to incur large expenses in the early stages on recruiting staff, technology, etc. This could impact the company’s profitability and return ratios

22. Comparing the numbers for all 3 companies

23. Important point to note down is:
More than 50% of MFI loans are still concentrated in four states (Tamil Nadu, Karnataka, UP and Maharashtra). This indicates huge growth potential.
Finally its not just about growth potential, but its more about capability to sustain black swans in more important in MFI.
As Buffett says, “When picking up a bank, better go with the leader which is well managed, than to go with high growth bank” – Warren Buffett
Growth is a double edged sword in case of Banks
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