SKS Microfinance lining up for IPO

In a first in India, SKS Microfinance, the largest microfinance company, is seeking a listing on Indian stock exchanges.

The firm has finalised merchant bankers for its initial public offering. Sources told DNA Money that Kotak Mahindra Capital is one of the investment bankers that Hyderabad-based SKS has brought on board. The Financial Times reported on Friday that Credit Suisse and Citigroup would be the other two bankers.

Vishal Mehta, general manager of Lok Capital, an investment firm, says, “If any company lists on the exchange this (SKS) would be the first company.”

Investors in the MFI, too, agree that an IPO is on the cards for the firm. “Some of the players in the industry that have achieved reach and scale may need funds for further growth. What better way than an IPO?” said an investor in SKS.

But not all investors may exit during the listing. When asked whether Sequoia Capital, which has done rounds of investing in SKS, would look for an exit during the IPO, Rajiv Sabharwal, executive director, Sequoia Capital India Advisors, said, “We are long-term investors in the sector.”

But, Suresh Gurumani, chief executive officer and managing director of SKS Microfinance, denied that the firm was looking at an IPO. “If you look at our books we are far away from an IPO. We have also raised a lot of money recently so we don’t need capital right now.”

Other MFIs, too, are exploring the listing route for capital. Udai Kumar, chairman and managing director of Share Microfin, said, “We are looking at an IPO in less than two years.”

“One reason is the capital requirement need for growing the MFI lending and another is to provide an exit opportunity to investors. We have two investors - Legatum Group holds about 62-63%, Aavishkaar India Micro Venture Capital Fund holds around 5% and the balance is with the promoter group. There will be a second round of investment of up to Rs 100 crore soon.” Udai Kumar added.

Others said they don’t have any IPO plans. P N Vasudevan, managing director, Equitas Micro Finance, said, “I can’t see an IPO as yet.” But the industry is maturing. “Credit profile of MFIs is improving and they would be ready for capitalisation through equity, debt, securitisation,” said Ramraj Pai, director at Crisil Ratings.

Experts point out that only a couple of MFIs right now may be in a position for a public listing. Ulhas Deshpande, chief executive officer at Intellectual capital Advisor Service, said, “Only the top four MFIs, where PE investments have happened in the three-five years may be looking at an IPO. But it may not happen before the second quarter of next financial year. Largely the ones that have been growing rapidly and are well funded will be in need for more funds. The best way to grow is to list.”

“There are about 1000 MFIs in India of which a majority - may be 900 - are trust societies. But the for-profit NBFCs have about 70-80% of the business,” Deshpande added.

Echoing his words, another Delhi-based independent consultant, Brij Mohan, said, “Not many can list as there are not many with size and scale. But if one of the MFIs lists then others with certain amount of size too may want to see the experience and list.”

But apart from IPOs there may be other exit options available for private equity investors in the microfinance industry. Sanjay Doshi, director at KPMG, says, “Scaling-up through the inorganic route, access to new territories and challenges on leverage may be key drivers for consolidation in this sector.  Private equity players may see an opportunity of exiting at attractive values during this consolidation phase that is likely in the near term”.

“Given no precedence, any IPO would be a first of its kind. Listing will increase the challenge of striking a right balance between an MFI’s social objective and profit motive,” Doshi added.

Public listing may also be ironical to the goal that the sector is expected to fulfill, experts say. “Listing is a sensitive issue as the sector provides finance to the needy and if there are huge profits made after listing then there may be a disconnect,” said a consultant not willing to be named.