**Business**
**started in 1995 as a ESAF Foundation, a microfinance institution**
received RBI banking license in 2016.
The operate through 700 branches spread across 21 states, based out of Kerala.
Total Asset under management ( AUM) FY23 16330cr
71% of which is from rural/ semi-urban towns.
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**Total banking outlets 700**
Customer service centre 767 ( operated by business correspondents)
Banking agents 2116
ATMs 559
**504 of 700 outlets are in 4 states (Kerala/ Tamil Nadu,MP, Chattisgarh), 43% being only in Kerala.**
71% of banking outlets in rural/ semi-urban areas.
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**Digitization and analytics**
1. Customer on-boarding process digitalized for Micro Loans ( doorstep service – account opening via tab)
2. Technology based for underwriting and credit sanctioning ( using analytics)
3. Technology solutions for cashless disbursement of loans – e-sign for loan documents
4. Collections mechanism digitalized through mobile applications
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**Future plans**
1. to increase retail loans ( current 2610cr AUM FY23)- gold loans, mortgage loans, vehicle loans
2. to increase MSME, agri loans
3. increase NRI services, since significant percentage of households in Kerala has NRIs ( 21% of book is NRI now)
4. to target HNIs
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**Industry overview**
**Micofinance institutions are Banker to the unbanked.**
Small finance bank scenario is dominated by 3 prominent players, AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank
**ESAF’s loan book size is 16330cr (bigger listed peers Ujjivan 25000cr, Equitas 30000cr)**
**47% of India’s GDP comes from rural India, but rural contributes only 8% of total credit sector**. With the series of banking reforms like Jan Dhan Accounts, launch of UPI, increasing smartphone penetration and cheaper mobile internet, high speed broadband connectivity to rural- all these combined is going to increase penetration of credit to rural India.
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**Operating metrics**
**Loan book composition as on FY23**
Microfinance 12250cr (75%)
Retail loans 2610cr (16%)
Agri loans 690cr (4.5%)
Loan to fin insti 619cr (3.7%)
Out of 16%, retail loans 13% ( of total) is gold loans.
Total AUM 16330cr ( AUM as on Q1 FY24 – 17200cr )
**75% of loanbook is unsecured** ( vs 66% Utkarsh, 73% Ujjivan)
**Deposit book 14660cr** ( last 2 year CAGR 27%)
CASA deposits 21.4%
Term deposits 78.6% ( Retail 69%, Bulk 9%)
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**Financials**
Operating profits of 890cr ( became > 2 times in 2 years)
**PAT 300cr ( close to 3 times in 2 years)**
Gross NPA of FY23 is 350cr ( GNPA 2.49%) ( Ujjivan 2.62% )
GNPA FY22 7.83% , FY21 6.7% FY24 Q1 1.65%
NNPA 1.13% ( FY22 3.9%) Q1 FY24 0.81% ( Ujjivan 0.06%)
**1090cr amount write off+restructured in FY23**
Provision coverage 57%
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**Financial ratios ( FY23)**
Comparable peer Ujjivan/ Utkarsh
Interest rates/ cost of funds similar to Ujjivan, Utkarsh
Cost to income 58%
Credit cost 3.82% (Ujjivan 0.09%)
ROA 1.59% (Ujjivan 3.86%, Utkarsh 2.1%)
ROE 19.4% (Ujjivan 31.8%, Utkarsh 22%)
CRAR 20.5% ( Tier 1 18.95%) Q1- 20.5%
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**Points to consider**
**Overexposure to Kerala (43% of loanbook) and Tamil Nadu ( 22% ) can bring stress to loanbook if specific natural/ economic events affect these states. 65% of book- 2 states.**
Very fast growth ( 39% AUM CAGR last 2 years) of loanbook was possible as it was < 10000cr. With loanbook crossed Rs 13000cr now, growth rate may taper as was seen in other peers.
Though interest rates are similar, Equitas is strong competition working in South( 50% business from Tamil Nadu) .
Credit costs are quite high at 3.82% vs peers.
Largest markets of microfinance are UP, Bihar, WB, Odisha, Tamil Nadu- where UP, Bihar are the most underpenetrated in terms of credit. Barring Tamil Nadu, ESAF SFB does not have much presence in these states.
**Valuation**
ESAF SFB is valued at Price/ Book ratio 1.57 ( FY23) and 1.46 at FY24 Q1. Comparable peers Ujjivan at 2.7 and Utkarsh at 2.1
View on r/IndianStreetBets by TheMoatInvestor