Will SKS’s Improvements Be Enough?

SKS’s troubles do not seem to be coming to an end soon. In addition to increased microfinance sector regulations driven by Andhra Pradesh state politics, the company recently saw their founder and chairman, Vikram Akula, leave the organization. Market rumors suggest that issues with the management team led to Akula’s resignation.

SKS Microfinance’s Financials
SKS’s Q2 revenues fell 26% over the quarter and 67% over the year to Rs. 1.31 billion (~$25.17 million). Loss for the quarter increased to Rs. 3.85 billion (~$73.98 million) owing to the write-off of Rs. 3.26 billion (~$62.64 million) pertaining to Andhra Pradesh state loans. A year ago, the company reported profits of Rs 0.81 billion (~$15.57 million). They ended the quarter with 2,032 branches across 19 states and a total member base of 6.4 million. During the quarter, incremental loan disbursements stood at Rs. 7.21 billion (~$138.55 million) ending with a gross Loan portfolio at Rs. 26.35 billion (~$506.35 million) including assigned loans of Rs. 2.11 billion (~$40.55 million).

SKS Revamps Its Offerings
SKS plans to address their declining profitability concern by reorganizing their offerings. SKS’s revenues are dominated by their microfinance products. However, they aim to increase the share of the non-microfinance business to 20% of revenues and 30% of margins in the next few years. They also plan to expand their Sangam store service to 15,000 stores from the 4,000 serviced at present. The Sangam store service helps small grocers with working capital financing. Finally, they are also working on increasing the loans offered for purchase of mobile handsets from 280,000 currently to 550,000 by fiscal 2013.

In addition, SKS is working on improving their customer-facing services. As part of the improvement, they will ensure privacy of client data and transparent and responsible pricing; establish a mechanism for addressing customer grievances; help customers avoid over-indebtedness; and employ appropriate collection practices. To ensure a more effective grievance redressal process, they will soon form an expert panel to address issues and appoint an ombudsman from the social sector by the end of this fiscal year.

SKS is also restructuring their current loan outstanding and will be expanding operations beyond the states they operate in. SKS plans to cap the maximum exposure in any state to 10%. At present, Andhra Pradesh commands 25% of their loan portfolio, a number they are looking to reduce.

To be able to finance these additional investments, they are looking at raising up to Rs 5 billion (~$97.25 million) through an additional share sale by March of 2012.

Meanwhile, their stock slipped to an all-time low of Rs 106.55 (~$2.06) earlier this month and is now trading at Rs 112.85 (~$2.15).