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Higher Provisioning Dents SKS Profit Numbers

25 January, 2011

India’s largest microfinance lender SKS Microfinance’s net profit shrunk by more than a third for the quarter ended December 31 over the year ago period, hit by higher provisioning due to new regulatory norms. For the company that has been battered by investors in the stock market after its key market Andhra Pradesh erected strict local norms that affected the business of all microfinance firms, this was the first quarter results reflecting the tight local laws.

The firm that went public late last year, becoming the first microfinance firm to list on the Indian bourses had seen investors dump its stock over the last two months. The stock price has more than halved after hitting its peak in September or weeks after making its debut.

SKS’ net profit declined to Rs 34.15 crore in the three months to end December compared to Rs 55.45 crore in the corresponding period the previous year. On a sequential basis, net profit has more than halved compared to Rs 80.55 crore for the first quarter ended September 30. SKS follows a July-June financial year.

The total provisioning and write offs for the quarter stood at Rs 100.75 crore. This included additional provisioning of Rs 26.98 crore to comply with recommendations made by the committee set by the central bank to look at issues in the microfinance industry, that submitted its report last week.

The provisioning and write offs also includes Rs 58.74 crore for its portfolio of loans related to the state of Andhra Pradesh.

The company’s provisioning & write-off expense rose over five fold on a sequential quarter basis, that also affected its profit margins. SKS’ operating margins declined from 59.85% for the quarter ended September to 39.68% for the second quarter. Its net profit margins shrunk even faster from 21.97% in Q1 to 8.88% for the quarter ended December 31.

In a statement, SKS said it will continue to assess the adequacy of provision on the Andhra Pradesh portfolio due to the continued evolving environment in the state and the outcome of the pending lawsuit that has challenged the state’s new microfinance law.

SKS scrip is trading 13% below its weekly high and 4.2% below the last closing price on Monday.


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Higher Provisioning Dents SKS Profit Numbers

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