The first day of trading after Independence Day 2010 saw the shares of SKS Microfinance Limited list at the BSE and NSE respectively. The share which was issued at the top end of the price band at Rs 985 listed and made a low for the day of Rs 1040. The share closed for the day at Rs 1088.65, a gain of Rs 103.65 or 10.52%. This was a red letter day for the company and 16th August would never be forgotten by investors. This issue had half a dozen merchant bankers and was very well received by investors of all classes, colour and creed. The issue did very well and even though there were some people who felt there were issues of ethics involved in this issue in terms of rate of interest, they remained mere questions and doubts.
The issue continued its upward movement and it made its lifetime high of Rs 1,491.50 on the 28th of August 2010. The gain at this point in time was a staggering Rs 506.50 or 51.42% from the issue price. From this point the share has been slipping and falling on some news or the other and made a low of Rs 330.75 and closed at Rs 331.80 on the 6th of May 2011. The loss from the high is Rs 1,159.70 or a staggering 77.75%. If one were to look at it from the issue price of Rs 985, the fall is Rs 653.20 or 66.31%. The question is what happened that the fortunes have moved so swiftly that a share issued at Rs 985 which was being talked about as the best thing that could have happened to the stock market gained 51% and lost more than 77% thereafter.
The company is a fit case to be examined as a test case of what happened and I believe this should be taken up by one of the top management institutes of India as a case study of what went wrong. This company was helped by a large group of merchant bankers and this issue was supposed to change the way investors look at this business. There were many issues which were raised about the company’s business model, the change in interest of the company from being a non-profit organization to a company with profit as the motive. Issues such as the ownership of the promoter and the indirect holding of the trusts and who owned these trusts. Similarly there were issues about the rate of interest being charged and whether this was any different from money lenders looting poor people. All these issues were very conveniently pushed under the carpet and after SKS we had a number of microfinance companies looking to tap the capital markets.
And then things began to happen. There was a dispute between the promoter Dr Akula and Mr Gurumani which led to the latter’s dismissal. This had the market talking and it affected the stock market. The promoter expressed his desire to joining politics and that was a grave mistake. Suddenly we found the state government of Andhra Pradesh promulgating an ordinance and regulating the business of microfinance in terms of monthly interest and also fixing a cap on the upper rate of interest. RBI stepped in and formed the Malegam committee to look into the affairs of the microfinance sector. All these factors have led to a steady decline in the share price.
Friday saw a foreign broking house recommending a price target on the share price as Rs 200. The share fell sharply on this report through the day. After close of market the company declared its results for the March quarter and annual results for the year ended March 2011, which saw a loss of Rs 70 crs for the March quarter. Effect of these results will be seen on the share when trading resumes on Monday. There are rumours that the company is likely to settle the pending dispute with Mr Gurumani shortly. This would cost the company some money.
There have been corporate governance issues and more importantly the company has been in the news from the time of the issue till date. Hyped and over hyped is never in the interest of any company but SKS has loved being in the news for right or wrong reasons.
The entire microfinance sector has come under the spotlight after looking at the hype of SKS. The good from it has been that the ‘inefficient PSU’ banks have risen to the occasion, sensing a good opportunity and more than make up the vacuum created by the microfinance players.
The moral of the story in a nutshell is that anything which gets over hyped is a sitting duck waiting for disaster to happen. One only hopes that after SKS the next company to fall in this category does not turn out be Muthoot Finance.
