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Satin Creditcare Network Ltd (SCNL or Satin), at its Analyst Day, exuded confidence w.r.t delivering continued growth across asset segments while maintaining strong asset quality. Mgmt indicated that microfinance portfolio originated post Jul’21 continues to exhibit asset quality far better than industry levels (PAR1/ PAR90 at 0.9% /0.5% for Satin vs. 4.4%/ 2.6% for other NBFC MFIs). Mgmt believes its reinvigorated focus on collections, revamped customer selection model (which includes score cards) and diversification have helped them achieve strong qualitative results. As indicated earlier (Satin_IC), Satin’s write-offs have been meaningfully lower than industry through Covid19-impacted period. Magmt has guided for RoAs of c.4.5% over the next 2-3 years (RoE of 18-20% by FY25E) with benefits coming through low credit costs and operating leverage and expects to deliver c.25% growth in AUMs over the medium term. The MSME and Affordable housing subsidiaries are scaling up well and are expected to reach 25% of portfolio (vs. 12% currently) over the medium term. Satin has also recently strengthened its mgmt team with leadership positions across MSME lending, finance by hiring professionals with rich experience across reputed organizations. Satin’s profitability is increasingly becoming consistent, which, in turn should drive rerating of its valuation multiples in our view. We maintain our BUY rating with an unchanged target price of INR 320.

* Asset quality focus and efficiency initiatives showing results: Over the last few years, Satin has reengineered its processes to inculcate greater focus on collections (99.6% CE for 1QFY24), quality of customer onboarding (customer score card) and greater efficiency (branch and employee productivity has improved meaningfully). This has resulted into Satin’s Covid19 asset quality performance being materially better than earlier envisaged and also relatively better than most peers. The portfolio originated after Jul’21 has PAR1/PAR90 of 0.9%/0.5% which is well ahead of industry. This is also aided by significant investments into technology backend and data analytics, revised incentive structures for employees as well as diversification across states (share of top 4 states 54% vs c.70% in FY18 and 96% of districts forming <1% of portfolio). We believe this bodes well continued stability in Satin’s profitability profile over the medium term.

* Sustained growth with increasing profitability: Satin expects to deliver c.25%+ growth in the microfinance portfolio over the medium term (current AUMs at c.INR84bn). Led by greater operating leverage and sustained lower credit costs, mgmt intends to deliver RoAs of 3.5-4% by FY25 and >4.5% thereafter. Credit costs are expected at 1.5-1.75% for FY25E (while FY24 is likely to be lower).

* Subsidiaries scaling up: Satin’s subsidiaries namely, Satin Finserv (provides secured MSME lending with avg tkt size of c.INR150k) and Satin Housing Finance (home loans with avg tkt size of c.INR1.5m for affordable housing and c.INR0.3m for micro housing) are set scale up over the next 2-3 years. Both subsidiaries should deliver growth (50%+ CAGR given small size) over the medium term and will likely form ~25% of the consolidated portfolio of Satin. Asset quality performance in both entities remains quite strong.  

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