Satin Creditcare Rights Issue review - (May apply)

• SCNL is in micro finance business with presence in 23 states.
• Top line shows growth, but bottom line has declined for FY20.
• Staggered payment scheme for this rights offer is investor friendly move.
• Based on its NAV and P/E ratio, issue appears reasonably priced.

ABOUT COMPANY

Satin Creditcare Network Ltd. (SCNL) - (erstwhile known as Satin Leasing & Finance Ltd.) is a micro finance institution that is poised to meet the demands of India's low-income households. SCNL is registered with the RBI as an NBFC-MFI. In May 2008, SCNL diversified and launched a rural micro finance vertical inspired by the Grameen Model. The company provides prompt, hassle-free and affordable financial & community services to low-income households. It provides collateral free, micro-credit facilities to economically active women in both rural and semi-urban areas, who otherwise have limited access to mainstream financial service providers.

SCNL is a non-political, non-religious, no caste-based organization. It does not discriminate against customers on the basis of ethnicity, age (Subject to IRDA norms), sexual orientation, political affiliation, caste, creed or religion. The company is backed by 34.6 lakh customers, 1,383 branches (Consolidated basis), 397 districts and 23 states, with Assets under Management (AUM) of Rs. 8173.67 cr. as on March 31, 2020. The Company's operations are based on a Joint Liability Group (JLG) model that enables collateral-free, micro-credit facilities to economically active women in both rural and semi-urban areas. It also finances purchase of solar products, bicycles, home appliances, consumer durables and safe water and sanitation facilities, among others.

SCNL offers income-generating loan (IGL) products to its clients, based on their repayment ability. These loans are given on the principle of Joint Liability Group (JLG) lending model or on an individual basis of lending. The loans are used for a variety of economic activities and eventually help in increasing the income generating capacity of the borrowers. Animal husbandry, production, service, and trade are some of the major sub-sectors where income generating loans are deployed. Employment, social welfare, and healthy working environment are the key by-products of the business of the company.

ISSUE DETAILS:

To part finance its future capital requirements (Rs. 89.29 cr.), general corpus funds (Rs. 29.76 cr.), SCNL is coming out with a rights issue of 19982667 equity shares of Rs. 10 each at a fixed price of Rs. 60 per share to mobilize Rs. 119.90 cr. The company is offering rights in the ratio of 48 shares against 125 shares held as on August 05, 2020. Only 25% i.e. Rs. 15 is to be paid on application for the number of shares applied and the balance amount will be payable on one or more subsequent calls as determined by the board at its sole discretion for the residual remaining amount of Rs. 45 per share. Issue opens for subscription on August 12, 2020 and will close on August 26, 2020. Staggered payment scheme augurs well for investors.

Scrip turned ex-right on August 04, 2020 with a close of Rs. 70.75 per share. It's cum right quote on August 03, 2020 was Rs. 77.85 per share. The scrip last traded at Rs. 72.10 per share (on August 07, 2020). It has marked last 52 week high/low of Rs. 297.32/Rs. 43.06 (as per BSE Web).

SCNL's current paid up capital of Rs. 52.04 cr. will stand enhanced to Rs. 72.02 cr. post this issue (at fully paid up value). On an immediate basis, post issue, it's paid up equity capital will be Rs. 57.03 cr. After allotment, shares will be listed on BSE and NSE. Company is spending Rs. 0.85 cr. for this rights issue process. For June 2020 end quarter, promoter's holding was around 30%.

Issue is solely lead managed by Corporate Professionals Capital Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, on a consolidated basis SCNL has posted total revenue/net profits of Rs.1031.24 cr. / Rs. 74.80 cr. (FY18), Rs. 1445.14 cr. / Rs.201.50 cr. (FY19) and Rs. 1503.43 cr. / Rs. 154.97 cr. (FY20). Despite growth in top line, the company has suffered a setback in bottom lines for the concluded fiscal. As on March 31, 2020, SCNL's book value per share stood at Rs. 264.03.

If we attribute FY20 earnings on post issue fully diluted equity, then asking price is at a P/E of less than 3. Issue is priced at a P/BV of 0.22 based on its NAV of Rs. 264.03 as on March 31, 2020. Thus on both these counts, issue appears attractively priced. With this offer price SCNL is looking at a market cap of Rs. 432.12 cr. against its market cap of Rs. 519.2 based on last closing ex-right price of Rs. 72.10 (as on 07.08.2020).