SKS Microfinance drops 20% to Rs 360 today as not in RBI’s shortlist of 10 to be granted mini bank licenses

SKS Microfinance lost 20% in early morning trade on NSE dropping to lower circuit at Rs 360 before recovering to Rs 390.Previous Closing was Rs 450

This  defining fall was the consequence of not having made it to the RBI List of 10 lending entities shortlisted from 72 applicants to become mini banks for advancing to the unbanked and small farmers and other segments that do not receive funding from the bigger banks.Interestingly eight of the ten short listed are microlenders

I have never been a fan of SKS Micro and it’s Promoters and had warned in 2010 to avoid the obscenely priced IPO  in the price band of Rs 850 to Rs 985 more so as it involved an unhealthy element of Offer for Sale by Sequoia Capital.Also was critical of  Promoter Vikram Akula’s mindset too in profiting by himself exiting a large shareholding at an obscene price prior to the issue.Here’s the story I posted in 2010.The share Price collapsed after the IPO and even dropped below Rs 100 to Rs 90 in 2011 and even lower to Rs 54 in 2012 before recovering smartly to touch a 52 Week High of Rs 590 on July 31,2015

I have an Issue…actually several…..with the SKS Microfinance Issue !….Intentions may be Noble but Actions are Profit Motivated and not singularly Selfless !

Interestingly RBI has not even shortlisted Vikram Akula’s Vaya Finserve that he started after exiting SKS Micro ….Interesting are also the parameters by which the applicants were assessed as deserving….financial soundness,business plan and fit and proper status as conveyed by external agencies.I suspect it must have been the last criteria weightage that saw the exclusion of  the above

Also a leading Broking House erred in haste when recommending SKS Micro to clients just recently setting a target of over Rs 700 for it.Now they have come out within days to state that in light of SKS Micro not being shortlisted the premium valuations will reduce and they have reduced the price  target to just over Rs 400 ! implying that  Rs 300 + in their target of over Rs 700 was based on the assumption and expectation of SKS Micro getting the mini bank licence  !….they should have waited for this confirmation or warned that the recommendation was only for aggressive players wishing to bet that SKS Micro would get the mini bank license.

Now they are wiser as all are !…wonder what their Clients who hold SKS Micro must be doing with their holding…holding in hope yet or exiting as relative valuations for this Rs 1000+ crs Net worth company are  20+ PE and 4.5 PBV ! ?

SKS Microfinance will find it increasingly difficult to compete with those who get the Mini Bank License as the latter will have access to lower cost and larger capital from the banks and many of them are promoted or supported by Big Entities