Bharat Financial: A Stock That Can Yield Superb Returns

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Brokerage firm Dynamic Levels has strongly recommended buying the stock of Micro Finance Institution, Bharat Financial Inclusion with a price target of Rs 910 in the short term and Rs 1,150 for the long term. Here are some reasons on why the brokerage firm is bullish on the stock.

Huge demand-supply gap

The Microfinance Industry (MFI) continues to be one of the sectors in India that has a huge potential for sustainable growth, based on industry reports. The MFI industry  grew by 84% YoY, while the disbursements during the year grew by 65% in FY16.

The industry grew by 69% in FY15 and 47% in FY14. As on March 2016, the MFI industry served 3.25 crore clients.

World Bank and EDA Rural Systems' reports indicate that 150 million households in India require microcredit with an average credit requirement per household at Rs 20,000. This translates into an annual aggregate demand of Rs 2,40,000 crore for microcredit in India. Hence there is a huge demand-supply gap.

Market leadership

Bharat Financial Inclusion is the second largest MFI in India by Gross Loan Portfolio. The Company believes that its consistent position among the leading MFIs in the microfinance sector enhances its reputation.

Bharat Financials also has the lowest lending rate (19.75%) amongst private sector MFIs. The lending rate of the company is lower by 2.25-4% than the lending rate of other major NBFC-MFIs in India.

Improving profitability, stable financial condition

Although Bharat Financials' condition deteriorated in the aftermath of events in Andhra Pradesh and the Company incurred losses during FY12 and FY13, the Company satisfied all its debt repayment obligations even during the Andhra Pradesh microfinance situation, that is, in FY12 and FY13, and thereafter.

Its revenues grew at a CAGR of 55.3% from FY13 to FY16, and the Company reported a profit of 303 crores for FY16, the third consecutive year of profit post the turnaround.

A quick snap shot

  • Bharat Financials is the most efficient and lowest cost MFI lender. 
  • Impeccable track record of meeting financial obligations in a timely manner even during the black swan event of AP-MFI crisis.
  • Diversified earnings stream with cross-sell/ Non-Loan revenue contributing 4% to PAT for Q3FY17.
  • Pan-India presence with no unbalanced geographic sectoral exposure. Strong solvency (Capital Adequacy of 36.2% as onQ3, FY17) and sufficient liquidity.
  • Steady state RoA of 4% is the highest among financial services play. 

Financial performance

Profit for the period ending December 2016 was Rs. 143 crores in Q3FY17 (growth of 80% YoY) and Rs. 428 Crs for 9MFY17 (growth of 96% YoY). A 35% growth (YOY) in Income from Operations has been delivered by the Company. Weighted avg. cost of borrowing reduced to 10.8% in Q3FY17 from 11.0% in Q2FY17.


EPS has shown considerable jump from Rs 6.26 to Rs 10.36 which is a growth of 65.5% YoY. The Company has shown growth in income from operation by 33.08% YoY and bottom line has shown tremendous growth were operating profit has gone up by 30.77% and Profit after tax grew by 79.65%.

Favorable Macros

Huge demand-supply gap in MFI Sector, entry barriers and supervisory standards are significantly enhanced thwarting future competition.

No credible alternative for microfinance emerges even after 6 years of AP MFI Act.

"We recommend BUY in Bharat Finance Inclusion Ltd with the target of Rs 910 (Short term) & Rs1150 (Long Term)," Dynamic Levels has said in its research report.

Disclaimer

The article is sourced from the research report of Dynamic Levels. The author has made every effort to ensure accuracy of information provided; however, neither Greynium Information Technologies Pvt Ltd, its subsidiaries and associates, the author nor Dynamic Levels can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to buy, sell in precious metal products, commodities, securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. 

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