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From A Dream To A Nightmare - SKS Microfinance

By Shashikant Singh | 10/25/2010 4:02 PM Monday

The story of SKS Microfinance is one of those success stories that others were waiting to emulate. This was the dream run others were aspiring for but as the events that have unfolded over the past few weeks, both in macro and micro perspective, have shown, the story is turning out to be a nightmare that others will hardly want to experience. On October 4, in a rare notice of its kind, SKS Microfinance informed the Bombay Stock Exchange that the company “had withdrawn all the powers and authority granted to CEO Suresh Gurumani or otherwise enjoyed by him.” The management and the board of the directors of the company argued for this high-profile sacking because of Gurumani’s incapability to handle the changing dynamics of the microfinance industry post the IPO. But there seems to be more than what meets the eye. Did the man who successfully anchored one of the most successful IPOs of 2010 in India and led to the growth of 220 per cent in bottomline since 2008 when he joined the company suddenly become incapable of handling the change and understanding the dynamics of the industry? Even on other financial parameters like return of assets and equity, the company excelled during his tenure and doubled to 4.91 per cent and 21.54 per cent respectively. Moreover, the person who has been elevated to the post of CEO now was always a part of the management as chief operating officer to assist the CEO. What further raises the question is that in a board meeting held on September 7, 2010, M R Rao was elevated as deputy CEO.

Vikram Akula, the company’s founder chairman, admitted to interpersonal issues and conflicts between the MD and rest of the senior management team, including most of the MD’s direct reports, during a media conference called in Mumbai to clear the air about the sacking of the CEO. But all the rationale offered by him turned out to be unpersuasive, unconvincing, and unclear. The share prices of the company did not remain immune to these events. Though the listing gain was not spectacular and yielded only 10-15 per cent of gain (depending upon the type of investors since a retail investor got a discount of `50), the next one month was definitely impressive in terms of returns. On September 28, SKS’ share reached to its all-time high of `1,402 on closing basis, thereby providing return of 42 per cent in a time span of a little more than a month. But what followed in the next two weeks due to these events was more dramatic and the share prices plummeted to an all-time low of `1,079 by October 18, eroding `1,900 crore of the shareholders’ money. This can also be partly explained by one of the ordinance on microfinance by the Government of Andhra Pradesh, known as the

 

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