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Agenda

• Satin Credit Care
• Equitas Holdings
• Ujjivan Financial Services

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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 1996. 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.

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• 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 gt95 of total loan
  portfolio

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• 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.

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• 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

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• 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
• NBFCs 15
• Foreign Institutions 9
• The companys 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.

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• 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

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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 NBFCs 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

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• 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.

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• 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.

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• 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 doesnt have any problem in meeting
  75 Priority Sector Lending of Loan book.
  Because, its entire book is classified as PSL.

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• 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, EFPLs credit rating improved
  with CARE upgrading long term rating of EFPL from
  BBB to A-

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• 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 companys 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.

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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)

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• 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.

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• 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 IBMs
  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.

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• 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

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• 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-

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• 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 companys profitability and
  return ratios

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• Comparing the numbers for all 3 companies

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• 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
• - END-

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