SKS Microfinance slumps after earnings warning

SKS Microfinance slumped 20% to Rs 642.80 at 11:22 IST after the microfinance company warned that an ordinance enacted on 15 October 2010, by Andhra Pradesh government on collections could have an impact on its profitability.

The announcement was made on Wednesday, 17 November 2010, when the Indian equity markets were shut for public holiday.



Meanwhile, the BSE Sensex was down 135.31 points, or 0.68%, to 19,729.83.

On BSE, 11.60 lakh shares were traded in the counter compared with average volume of 2.26 lakh shares in past two-weeks.

The stock hit a high of Rs 818.90 so far during the day. The stock hit a low of Rs 639.45, which is also a record low.

The SKS Microfinance management stated that the finance company's collections have come in lower than normal post the Andhra Pradesh government ordinance. This reduction in collection can have material impact on the company's income. It added that the sales, profit and asset quality of its Andhra Pradesh portfolio could be deeply impacted.

SKS Microfinance had earlier announced that it was planning to cut interest rates to 24% across all states, after an ordinance passed by Andhra Pradesh imposed serious restrictions on its business model.

Last month, the Andhra Pradesh government through an ordinance imposed a limit on rates that the industry can charge customers and also curbed aggressive recovery practices following several suicides by borrowers in the state. The state contributes 28% of the current loan portfolio of the company.

SKS said it is in talks with the Andhra Pradesh government and regulators like the Reserve Bank of India and Ministry of Finance for 'rectifying onerous aspects of the Ordinance and its implementation'.

According to reports, the government is likely to introduce the Microfinance Bill in the next three-four months. The bill may be introduced in the budget session of parliament. The proposal will use inputs from the YH Malegam Committee.

Microfinance firms typically give loans to small businesses that have no access to banks and charge an effective rate of 28-32% a year, about double the rate on bank loans.

SKS Microfinance's net profit soared 115.7% to Rs 80.55 crore on 75.5% increase in operating income to Rs 347.69 crore in Q2 September 2010 over Q2 September 2009.

Shares of the Hyderabad-based microfinance firm SKS Microfinance debuted on 16 August 2010 at Rs 1,036, a 5.18% premium over the initial public offering (IPO) price of Rs 985. On that day, the stock ended at Rs 1,088.58, a 10.52% premium over the IPO price.