Satin Creditcare: Turning a corner

12 Feb 2024 , 12:01 PM

After a long haitus during COVID, Satin is well on its path to grow at ~30% led by customer acquisition, geographical expansion, ATS growth and scale up of non-MFI segments (MSME and affordable HL). It has also made improvements in its underwrtiting and collections processes, is investing in tech and has made key leadership changes. Consequently, analysts of IIFL Capital Services expect Satin to sustain its FY24 performance and deliver ROAs/ROEs of 4.7%/21.5% by FY26 with EPS growth of 21% Cagr (FY24-26). Its valuations at 1x FY25 P/B are undemanding and are at ~40% discount to its peers. Initiate coverage with BUY and a TP of ₹350, implying 1.3x P/B multiple on FY25 book. 

Strong loan growth with geographic diversification: 

After the pandemic period growth slump, Satin is back on the growth path with FY24 disbursements likely to be ~20% higher than pre-COVID peak (FY20). This has been aided by new customer acquisition and modest increase in ATS (5% Cagr since FY22). Satin has also reduced its geog. concentration (top 4 state concentration declining to 55% from 68% in FY18 and 96% districts having <1% concentration) and also forayed into new states (TN/KR). Analysts of IIFL Capital Services expect Satin to sustain this momentum and expects it to grow at ~30% Cagr for FY24E-FY26E. 

Superior AQ outcome during COVID; credit costs to normalize from FY24 lows: 

Satin demonstrated amongst the lowest cumulative credit costs of 10.5% (FY20-23) during COVID and its stage3+2 loans have halved to 4% (FY23) with post pandemic portfolio performaing better than the sector. However, analysts of IIFL Capital Services expect its credit costs to normalize to 160bps over FY25/26 from lows of 120bps in FY24 given rising MFI sector delinquencies in the northen states especially PB where Satin has 6.8% exposure. Analysts of IIFL Capital Services also expect Satin’s cost ratios to improve to 6.3% by FY26ii (-50bps) with growth resuming and tech spends moderating. 

Initiate with BUY and TP of Rs 350: 

Satin’s valuations at 1x FY25 P/B are undemanding for ROAs/ROEs of 4.7%/21.5% and are at ~40% discount to its MFI peers excluding CREDAG. Initiate coverage with BUY rating and a TP of Rs350, implying 1.3x P/B multiple on FY25 book. Risks: Event based risk, political risk, governance concerns.