Satin Creditcare - Out Of The Woods; The Stock Seems Attractive Compared To Its Peers, Says HDFC Securities

HDFC Securities Retail Research

Satin Creditcare Network Ltd. is one of the largest players in the micro finance institution industry with a wide geographical reach. Post Covid the company has seen a strong improvement in its collection efficiencies and along with write-offs, it has cleaned up its balance sheet.

After remaining cautious over the last few quarters, it has resumed its lending driving assets under management growth. Focus on secured products should reduce non-performing asset risk.

Capital raise of Rs 225 crore in Feb 2022 (shares/warrants to promoters and external investors at Rs 81.25) has provided the company with sufficient growth capital. Recoveries from written off accounts would support profit after tax growth.

The microfinance industry has witnessed strong growth and with the improving economic scenario, we expect the momentum to continue. The management has guided for AUM growth of 25% and return on asset of over 3.5% for FY24.

Valuation and Recommendation:

Satin Creditcare has come out of challenging times. Now with the capital adequacy in place and advances and net interest income growth looking attractive, the stock seems attractive compared to its peers.

Microfinance sector is seeing revival in growth and fall in delinquencies. Satin Creditcare currently trades at 0.7 FY25E price/adjusted book which is attractive in our view, given the potential in the coming years.

We have d the MFI at 0.8 times FY25E adjusted book for a base case target of Rs 194 and 0.85 times FY25E ABV for a bull case target of Rs 207 over next two-three quarters. Investors can buy the stock at in the band of Rs 171-175 and add on dips in Rs 145-149 (0.6 times FY25E ABV).

We have d the stock on standalone basis as the size and contribution from subsidiaries is still not meaningful.

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