‘Our focus will be to build value beyond remittances’

The global remittance market has been growing exponentially over the past few years and India is at the epicentre of this growth. Players in this business are looking to come out with a slew of new initiatives surrounding remittances. TimesofMoney, an India-based digital payment services company, is also at the forefront of this action and is planning to come out with a bouquet of services to help Indian migrants connect better with their families here. The president of TimesofMoney, Avijit Nanda, speaks with Moneylife's Sanket Dhanorkar in the second of a two-part series

Sanket Dhanorkar (ML): Which is the largest market for your company and where will your focus lie going forward?

Avijit Nanda (AN):North America is the biggest market for us. It's reflective of the fact that most of the Indian NRIs have migrated here. That's where most of the consumption of knowledge workers has happened. The NRI footprint is the strongest there. We also have UK, Europe, Canada, Australia, Singapore and Hong Kong. While we have coverage of about 24 countries today, these are our top markets. We will still continue to focus on these countries while improving product offerings and customer experience based on customer needs. Our product development team constantly researches customer needs and behaviour so that we are able to quickly translate that into a product offering through partnerships and alliances. So while we also focus on newer geographies to get more customers, our focus will also be towards trying to achieve depth in each of these countries. While the overall market is about $58 billion, the online space is just about 20% of that. Out of this $58 billion, at least 70% comes from North America in terms of volume. In terms of value, about 60% comes from the Gulf.

ML: What new products are you planning to come up with?

AN:Since we are an Internet-based service provider it is easy for us to reach out to clients. We are not dependent too much on physical infrastructure or capabilities to reach out. We do pilots on the basis of which we tweak our product offering. One such product which is in the pipeline is the bill-pay product. The idea behind it is that remitters need to send money for several reasons. There is this bouquet of non-financial services that we are looking at. We have an offering called Window2India which provides an NRI an opportunity to connect to India, much beyond remittances - a connect to his parents in the form of gifting or healthcare planning for parents, etc. Health is a very emotional play with immigrants there because they are not around to look after the wellbeing of their parents. We also offer services around investment advisory for asset classes like property. Our property services team researches real-estate solutions available in residential and commercial verticals. We give them end-to-end solutions of walking them through various options, providing background research on builders. Beyond that there are smaller services where NRIs can send money for charity or religious causes, donate money to their alma-mater or even make utility bill payments on behalf of parents. That is a big connect we are trying to establish. This is part of the BillPay2India service which we will launch shortly.

Our focus will be to build value beyond remittances. This is why we continue to focus on non-remittance solutions to surround the customer with. Our services should become a one-stop-shop for all his into-India requirements.

ML: Do you have any plans to launch mobile platform based services?

Yes, we are working on the capabilities for having a mobile based platform and the modalities for the same. For example, would a customer have the appetite to transfer $3,000? We have done some research. We have the advantage of being able to offer similar solutions to the domestic market in India. We will cross that and make it a cross-border solution. At this point of time, regulations do not permit us to do so. But we have the capability. We are working with the RBI. We should be able to offer the service as and when the regulator allows us.

ML: Will this product be something along the lines of M-PESA, the mobile payment service launched in Kenya? (M-PESA is a service allowing users to transfer money using a mobile phone. Kenya is the first country in the world to use this service, which is offered in partnership between Safaricom and Vodafone).

AN:M-PESA is a financial inclusion story. Kenya is a hugely under-banked economy. People are also at risk while carrying cash - it may get stolen or robbed. That's where the concept of converging value into a mobile phone came into being. This is a domestic solution. It is not yet a cross-border payment solution. We are trying to launch a similar service in a while in India as well, as a domestic commerce and money transfer solution, as and when regulators allow us.

Other than the regulatory hurdle, there are some other challenges as well. With the exception of M-PESA there have been many pilots, but no full-fledged customer rollouts. The challenge here is to get the customer excited to adopt. The preferred mode is cash. We have moved people from cash to credit cards to bank account payments to the Internet. Now, everything is converging on the mobile phone. It is critical that the ecosystem has to be built. Such a solution involves multiple parties, each having a significant role to play. So just having a customer is not sufficient. Once you have money in your mobile phone, you must have usability - you should be able to shop, eat out or order and pay out of the mobile phone. If it is just about giving your customer an ATM or debit card, then he might as well do it from his bank account. Then there is nothing fancy about getting a mobile phone involved. That is not a mobile-wallet solution. That is, using the mobile to do a transaction like one does with Internet banking. So all these factors - regulatory, customer acceptability, technology and ecosystem - have to converge. Adoption is not going to come overnight. It is a long-term story.

The customer will have to be shown the value in using such a service. The regulator is also aware and concerned about how such services can be provided to the customers while safeguarding their interest. Mobile service providers are also looking at creating an ecosystem.

ML: What other challenges do you face in this business?

While on the one hand, the overall remittance market is growing, the online category is only 20%. The biggest challenge is getting consumers to adopt such services. People have been habituated to do wire transfers through banks. While it is a challenge, it is an opportunity also. If you are able to establish a proof of concept with these users and get them on board, they will never go back once they use the system. They see the value demonstrated. So the challenge is how to break the mindset and get the customers to adopt such superior services. The other challenge is outside the India story. As a brand, how do we connect with clients outside India like the Mexicans or the Filipinos, for instance. We need to try and engage with these clients. 

Read First Part of the interview:
For illegal migrants, the hawala channel is the only alternative’part one


E&M industry poised to grow at 12.4% over next five years

Mumbai: India's entertainment and media (E&M) industry is poised to log a double digit growth of 12.4% cumulatively over the next five years touching Rs1040 billion by 2014, reports PTI quoting a latest report by research firm PricewaterhouseCoopers (PwC).

"Many of the factors which caused the slowdown in 2009 are not likely to persist. With confidence returning alongside a likely increase in consumer and advertisement spends, the E&M industry is looking to get back to its high growth trajectory," Timmy S Kandhari, leader-entertainment & media practice, PricewaterhouseCoopers India, said in the report titled 'Indian Entertainment & Media Outlook 2010'.

Unveiling the outlook for the industry during 2010-14, he said the television industry is projected to continue to be the major contributor to the overall industry revenue pie and is estimated to grow at a stable rate of 12.9% cumulatively over the next five years, from an estimated Rs265.5 billion in 2009 to Rs488 billion by 2014.

The film sector is projected to grow at a compound annual growth rate (CAGR) of 12.4% over the next five years, reaching Rs170.5 billion in 2014 from the present Rs95 billion in 2009.

The E&M industry registered one of its slowest growth rates in 2009, growing at a rate of 2.2%. This was largely due to lower than expected uptake in the advertisement spend which registered no growth and hence affected sectors like print, Out of Home (OOH), radio as well as Internet advertising. Negative growth in filmed entertainment also affected growth in 2009, the report said.

The print media industry is projected to grow by 7.4% over the period 2010-14, reaching to Rs230.5 billion in 2014 from the present Rs161.5 billion in 2009.

The radio advertising industry is projected to grow at a CAGR of 12.2% over 2010-14, reaching Rs16 billion in 2014 from the present Rs9 billion in 2009.

Due to the tremendous uptake of the mobile Value Added Services (VAS) market, the industry is projected to grow at a CAGR of 28.6% over 2010-14, reaching Rs26.5 billion in 2014.

The key growth driver for the music industry over the next five years will be digital music, and its share is expected to move from 29% in 2009 to 75% in 2014.

Given the trends of increased internet usage, internet advertising is projected to grow by 20.1% over the next five years and reach an estimated Rs15 billion in 2014 from the present Rs6 billion in 2009.

The estimated size of OOH advertising spend is Rs12.5 billion in 2009, which is projected to reach Rs21 billion in 2014. Its share in the total ad pie is expected to go down marginally to 5.6% in 2014 from a current level of 5.8% in 2009.

Animation, gaming and VFX industry will continue to maintain its growth pace and is projected to grow at a CAGR of 25.2% to Rs73.4 billion in 2014 from its current size of Rs23.8 billion.

The advertisement spend, which registered no growth in 2009, is showing a rebound with increasing business confidence returning to the market as well as with innovative structuring. The spend will grow at 11.4% CAGR for the period 2010-2014.


Is SKS Microfinance IPO being done at its peak performance?

An IPO multiple of 50 reminds one of the era of tech bubble. Plus, there are other issues like commitment of the top management, high remuneration paid to top executives, geographical concentration of business and mismatch in its assets and liabilities

The much talked about initial public offering (IPO) of India's largest microfinance lender, SKS Microfinance Ltd, hits the capital market today with a price band of Rs850 to Rs985 per share. The issue closes on 2 August 2010. The issue opened for subscription yesterday for anchor investors. SKS is issuing 1.67 crore equity shares of Rs10 each.

With earnings per share (EPS) of Rs32.98 as on 31 March 2010, SKS trades at price earnings ratio of 26 at the lower band and 30 at the upper band based on pre-IPO capital. The issue consists of a fresh issue of 74.45 lakh shares with 50.37 lakh shares reserved for retail investors. Qualified Institutional Buyers (QIBs) will be allotted one crore shares. The company is expecting to raise Rs1,427 crore-Rs1,654 crore through this IPO. 

Financials and other information provided by SKS appear good on paper. However, there are some issues with the company, like high valuation of the IPO, question of commitment from the top management, high remuneration paid to top executives, geographical concentration of business and mismatch in its assets and liabilities.

At the upper price band of Rs985, the company is demanding a valuation of almost 50 times its FY10 earnings, on post-IPO capital. For a non-banking financial company (NBFC), which has a limited period of operational history and no dividend record, the valuation looks very much stressed.

Although the company in its draft red herring prospectus (DRHP) claims that it has no competitive peers, SE Investments Ltd, a microfinance lender, is already listed on the Bombay Stock Exchange (BSE). SE Investments' EPS stands at Rs1.21 in the first quarter of FY10. The company posted a net profit of Rs17 crore. Based on the EPS of the first quarter of FY10, its P/E works out to 11 (annualised), which is lower than the PE of SKS.  

SKS reported a net profit of Rs174.8 crore on total revenues of Rs958.9 crore and an operating revenue of Rs873.50 crore for the year ended 31 March 2010. It had a negative cash flow of Rs541.20 crore for the year ended March 2010.

According to the DRHP, the key management of SKS Microfinance has decided to sell their stake in the run-up to the IPO under both stock option and stock purchase plans at a significant premium. Collectively, the transactions would imply a sale of 1.42 million shares or 8.4% of the IPO size. Although the Reserve Bank of India (RBI) has approved the transactions and there is nothing illegal about en-cashing investments, this raises a larger question of commitment on the eve of an IPO.

Another related fact is that out of the total issue size of 1.68 crore shares, more than half or 55.7% shares are put on sale by Sequoia Capital.

According to KA Prasanna of firstchoiceipoanalysis.com, the IPO of SKS Microfinance will make the promoters, and other venture capitalists including some private equity funds that have stakes in these companies, millionaires. The hapless borrowers continue to live in abject poverty, he added. Earlier in February, SKS Microfinance's founder and chairman Dr Vikram Akula sold 9.45 lakh shares at Rs639 per share to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million, Mr Prasanna added.

SKS Microfinance also offers high remuneration to its top management. Its chief executive and managing director, Suresh Gurumani, is entitled to a consolidated salary of Rs1.5 crore per annum, besides a performance bonus of Rs15 lakh per year, with annual increments up to maximum of 100% with the board having the liberty to approve any further increase over and above the 100%. Another shocking part is that Mr Gurumani was paid a one-time bonus of Rs1 crore in April 2009, barely five months after joining the company.

SKS Microfinance maintains a medium- to long-term borrowing profile, against which its lending maturity is within one year. This creates a significant asset-liability mismatch and exposes the company to interest rate risk.

SKS has expanded its membership to 6.8 lakh across 19 States during FY10 from 2.02 lakh in five States from FY06. Currently the company has 2,029 branches with total outstanding loans worth Rs2,936.70 crore as on 31 March 2010. During the same period, its debt to equity ratio stood at 2.84:1 with net non-performing assets (NPAs) of Rs4.8 crore or 0.16% of outstanding loans.

SKS provides small loans exclusively to poor women located in rural areas across India. The loans extended are purely for business and other income-generating activities and not for personal consumption. The company will use the IPO money to meet future capital requirements. 

With increased area of operation and scaled-up activities, microfinance is increasingly gaining credibility in the mainstream finance industry with many traditional large finance organisations contemplating a foray into this business.

From the geographical perspective, microfinance activity has traditionally been concentrated in southern India as 57% of the microfinance institutions (MFIs) and about 71% of the microfinance borrowers of the country are from this region.

Currently, the National Bank for Agriculture and Rural Development (NABARD) holds the right of regulatory oversight over MFIs except NBFCs. However, there exists a significant regulatory risk as the government may create a separate regulator for all MFIs. More importantly, the high interest rates charges by these MFIs may attract regulatory actions from the government or regulators, which may have a material impact on the ability of these institutions to sustain high returns. For the year to end-March, SKS charged an interest rate ranging from 26.7% to 31.4% to its customers.

Recent rules require NBFCs to maintain a capital adequacy ratio of at least 12% by 31 March 2010 and 15% by March next year. SKS' capital adequacy ratio was much higher at 28.3% as on 31 March 2010.

Kotak Mahindra Capital Co Ltd, Citigroup Global Markets India Pvt Ltd and Credit Suisse Securities (India) Pvt Ltd are the lead book running managers to the issue.

Rating agency CARE has assigned an 'IPO Grade 4' to the SKS IPO indicating 'Above Average' fundamentals.


Swayam Krishi Sangam (SKS) Society, a non-profit, non-government organisation (NGO), converted itself into SKS Microfinance, a non-banking financial company-non deposit taking (NBFC-ND) in 2005. Later in 2009, SKS Microfinance became a public limited entity from a private limited company. In addition to loans the company offers insurance products and productivity loans or loans designed for purchase of goods that enhance the productivity of members. SKS Microfinance has a tie-up with Bajaj Allianz Life Insurance Co Ltd and as of March 2010, had sold 2.9 million insurance policies.

SKS uses a village-centred, group-lending model to provide unsecured loans to its members. SKS Microfinance organises prospective clients into groups so that they can address the issue of information asymmetry and lack of collateral by transferring what could be an individual liability to a group liability and holding the group morally responsible for repayment. If one member fails to make the loan payment on time, the company may not extend any to that particular group in the future. Thus, the group can make payments on behalf of the individual defaulter.

According to the 2009 'Microfinance India State of the Sector' report, the average loan outstanding per client increased 23.8%to Rs5,200 in 2009 from Rs4,200 in 2008.



sanjay prabhu

7 years ago

Money Control says Axis Bank is highly exposed with more than 1300 cores exposure to Micro Finance Institution. The share market started coming down after the official disclosures from SKS that their collections are going down dramatically and that could impact their own sales and profitability that would also create some problems for who will lend to them.


7 years ago

Dear Moneylife Team:

We are at the end of October 2010 now. Hats off to your analysis of SKS way back on 28th July 2010. Your analysis was spot on.


7 years ago

Till now the borrowers have done suicide in AP and I am sure, soon it will be time for the investors too? SEBI / RBI officials should personally look into the book building process of the IPO, disclosures in RHP and the premium fixation.

Today everything is outsourced and you can buy professionals by paying money. In Indian financial market there is no accountability concept and any one can make money in short span of time, by doing forgery.

Jago Investors Jago


7 years ago

SEI invest trades at more than 40 p/e.


7 years ago

Dear V Jayaraman

We take a note and wish you all the success in promoting the moneylife of BPL Entrepreneurs and at the same time we look forward to protecting the investors money. All the best for IPO

Sanjay Prabhu

V Jayaraman

7 years ago

Please note that the shares have been issued to top management team and all Directors of the company. So, it is not the question of top to bottom, everybody is going to make money !!


7 years ago

The company management are going to make huge profit , everyone has close to 30-40k shares @ value of Rs 300
All folks top to bottom are minting money

V Jayaraman

7 years ago

My take on the issues stated :

As far as the promoters and associates selling stakes, please understand that these are professionals and first generation people who are running / associated in this business. They do not have deep pockets in terms of resources and if there are good valuations, at different points in time, they will sell. Also please understand, for the balance portion of the shares received under ESOP schemes, they have volunteered to carry lock in arrangement by themselves. This does not mean the promoters are not confident of their own business.

Secondly, as far as salary goes, NR Narayana Murthy states that - if you throw peanuts, you will get only monkeys. Imagine professionals from the best of industry to take senior positions on these near venture capital type of firms, why they cannot seek good compensation. Suresh was Head of Retail Banking in Barclays Bank. This plum job he quits to join a near venture firm. I am sure he deserves such salary for the risk he has taken.

Thirdly, the company as a strategy may be borrowing long and lending short. This also could mean that the company may be smartly redploying the same money receovered within the overall borrowing cycle of the company. I am sure the company knows what they do rather than remain sofa-based-critic.

Fourthly, the pricing aspect. There are no regulatory mechanism for the pricing. However, CRISIL rating is indicative of the fundamentals of the company. SE Investments is no comparison to SKS Microfinance. SKS is the leader right now and this would set the industry expectation and the performance of the company would represent whether the PE is correct or not. This position can continue unless RBI comes with a gag-order on maximum pricing which can be charged by MFIs. Till such time, the company can continue to maintain numero-uno position.

Dr. Vikram Akula is an IIT Alumnus and he is supported by a broad based board. I am sure in the modern environment, 4 years is a good enough period to understand and perform in the field. I am sure he has further plans to strengthen and continue to remain as no. 1 player in MFI segment. Let us give him the benefit and let us not bulldoze him too much prior to IPO.


k a prasanna

In Reply to V Jayaraman 7 years ago

Promoters have sold the shares to make fast buck. There is no love for the profession or the poor. Even the CMD of the largest bank in the country does not draw so much salary. CRISIL grading has nothing to do with pricing. It is an one-off assignment, about the fundamentals of the company. It does not mean one can price the issue as they wish. The BRLM, Kotak Capital's track record in this is regard awful. Some of the issues managed by the Kotak in 2010 are quoting below the offer price. They are Hathway cable, Nitesh Estates and D B Realty. This will also go the same way. The issue is irrationally priced.


In Reply to k a prasanna 7 years ago

SEBI should conduct immediate inquiry in all those issues which are quoting below 25% of the offer price and warn the BLRM from showing the blue sky to the retail investors.

Wake up regulators, its time to act judiciously in the interest of the investors, as every one wants to take a bath in the holy rivers of India and make it polluted.


7 years ago

After looking at Emami Infra listing, it seems that Indian Capital Market is a big balloon with very high valuations, and that too without any accountability and hence we request retail investors to stay away from primary issues.


7 years ago

I fail to understand how the valuation go up from Rs.300 per share to Rs.985 in six months. An also how the price discovery in the book building phase has said Eureka to Rs.985 per share. At these valuation only the PE investors gain. I guess retail investor should stay away and let the all Institutional investor play around


7 years ago

SKS has overpriced its issue. Subscribers may be in difficulty laterwards.

Raj Kumar

7 years ago

The issue of management selling its stakes does pose issue of lack of promotor/management confidence in the long term prospects of business. This issue is more relevant for the naive, retail investors who do not understand the fundamentals of microfinance business.

High top exceuttive salaries is somethign that has been recently discussed in the wake of financial crisis. It does incetivise the executives to play for short term gains rather than for long-term sustainable advantages.

My issue is not so much with the profiteering by the investors - this is what they would do with any company that provides quick short term gains. The larger problem is microfinance has much more at risk which can not be captured by historical events and teh companies need to provision heavily for bad days. Today's accounting profit does not take into account the future risk. The short term investors are not bothered by this and leave as soon as they receive enough valuations.

On the Asset-Liability mismatch, the MFIs borrow for a longer term and lend at shorter term. The market at borrowers end is not mature enough to take cognizance of smaller market changes. If the rates really go down becuase of competition, et al, the MFIs do have enough margins to cover for a shorter term (often less than a year)


7 years ago

Microfinance is nothing but distribution of money to poor and needy, no doubt its a good cause, but the money should go to the right hands and for the right purpose. SKS does not have good recovery mechanism and they too pay brokerage for acquiring small ticket size assets, which will increase the cost of funds and more prone to NPA and hence the present offer price band of Rs850 to Rs985 per share is very high valuation and does not deserve that price

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