The country’s largest microfinance firm SKS Microfinance more than tripled its net profit for the quarter ended June 30, 2010, to Rs 66.7 crore arguably vindicating investors’ interest in the firm that has pushed its valuation to around Rs 10,000 crore ($2.1 billion).
The firm’s total income from operations also almost doubled to Rs 284 crore for the first quarter of current fiscal. Although personnel expenses (that accounts for the single largest operating expense) didn’t rise as fast as revenues, the big boost to earnings came from modest increase in interest and finance charges.
Interest and finance expenses absorbed around 40% of total income in the quarter ended June’09 but was just about 24% of the topline in the last quarter. So while the company managed to grow its business, slow rise in cost of funds helped it improve its financial performance.
If the earnings are annualised based on last quarter’s numbers, the microfinance firm will have earnings per share of around Rs 40 that will mean investors are punting on one year forward earnings of around 35 which is around the same as the country’s second largest private bank HDFC Bank and almost twice the average of India’s two largest lenders SBI and ICICI Bank.
SKS Microfinance has already made its way into the broad market index BSE 500 at the Bombay Stock Exchange, replacing Cals Refineries.
The firm that went public last month has seen its scrip zoom 40% compared to the issue price with its shareholders including mid-senior level executives and private equity investors sitting on huge gains.
Sequoia that made part exit with returns of over 16x in its three year old investment is now sitting on huge unrealised gains. It had invested through two funds SCI II Llc and SCIGI I with average cost of purchase pegged at Rs 61.18 and Rs 137.53 per share, respectively. SCI II was a part of the group of shareholders who together offered to sell a part of their holding in the IPO. At the latest price, SCI II is sitting on potential net gains of almost 22x while SCIGI I is sitting on unrealised net gains of over 10x.