Stock Pick From Finance Sector

Robust Financials with Optimistic Forecast

There are lots of buzz in the non-banking financial institutions (NBFC) sector these days. Government in the Centre is taking many initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY). It is also setting up Micro Units Development & Refinance Agency (MUDRA) Bank as a single regulator for all types of entities in microfinance space which is a positive for the sector. Considering better industry opportunities in the coming time, companies like Bharat Financial Inclusion (BFIL) will benefit.

BFIL is a non-banking financial company-micro finance institution (NBFC-MFI). The company offers loans mainly for income generating activities and not for personal consumption. It has presence across approximately 20 states, covering over one lakh villages and catering to approximately 69.7 lakh women members.

BFIL uses unique ‘Gramin’ model to provide unsecured credit at the doorstep of low income households. The company is using unique model comprising of surveying village, recruiting members, deliver doorstep service and providing training. The company focuses on non-agricultural activities for providing loans and also gives weekly instalment facility to customers.

BFIL’s number of branches increased by 8 per cent to 1368 as of Q1FY17 on a yearly basis. The company reported its Net Interest Margin (NIM) increased by 20 basis points to 10.8 per cent in Q1FY17 as compared to the previous quarter. Meanwhile, its NIM declined by 60 basis points on a yearly basis due to cut in interest rates last fiscal. The company’s gross NPA and net NPA stood at 0.1 per cent and 0.03 per cent in Q1FY17 respectively.

On financial front, BFIL’s net sales increased by 53.19 per cent to Rs 369 crore in Q1FY17 as compared to the same period in the previous financial year. The company’s EBITDA too rose by 66.45 per cent to Rs 232 crore in Q1FY17 on a yearly basis. Its net profit got boosted by almost four times to Rs 236 crore in Q1FY17 as compared to the same period in the previous fiscal year. BFIL’s incremental drawdowns of Rs 1096 crore in Q1FY17 was reported against Rs 1046 crore Q1FY16 under managed loans. The company completed securitisation transactions of Rs 214 crore rated as ‘AA (SO)’ in Q1FY17. Its loan disbursement increased by 59 per cent to Rs 3769 crore in Q1FY17 on a yearly basis.

On a yearly front, BFIL’s revenue increased by 68.06 per cent to Rs 1064 crore in FY16. The company’s EBITDA too rose by 84.72 per cent to Rs 735 crore in FY16 on a yearly basis. Its net profit margin increased by 61.45 per cent to Rs 303 crore in FY16 as compared to the previous fiscal year. BFIL’s CAGR AUM growth stood at 56 per cent during the last three years. The company’s average loan outstanding per borrower stands at Rs 16557 as of FY16.

On valuation front, BFIL’s share price is trading at PE multiple of 21.78x times which is attractive as compared to peers Capital First (37.34x), SREI Infrastructure Finance (65.07x) while industry PE multiple stands at 26.03x times. Hence, we recommend to BUY the stock.