Investors of SKS Microfinance were in for a surprise on Monday with the company sacking its chief executive officer and managing director Suresh Gurumani, with immediate effect.
As per sources, differences between chairman and founder Vikram Akula and Gurumani has led to the latter’s termination. CNBC-TV18 learns that Gurmani may sue SKS Microfin for the termination. Gurmani said the company’s interest could be affected by this move.
So what does it mean for investors?
Speaking to CNBC-TV18’s Udayan Mukherjee, Saikiran Pulavarthi of Indiabulls—who attended the concall hosted by SKS Microfin post the event—said the sudden change of guard does give way to some concerns. "We are more concerned with the business risks, which are associated with the microfinance lending," he cautioned.
The company share closed at Rs 1276.5 on the Bombay Stock exchange on Monday, down by almost 6% over previous close. SKS Microfinance is the first microfinance company to have gone public. It had raised Rs 1,653 crore through an IPO in July.
Below is a verbatim transcript of the interview. Also watch the video.
Q: What did you make of this episode of the CEO being sacked or asked to go?
A: Definitely. We do not have a view on what could be the impact. Having said that, as an investor, I would be more concerned with the sudden change in the management, that too, immediately after the IPO.
Q: You must have attended the concall yesterday—what came through from it?
A: The management is maintaining that the change has been primarily driven by the performance issues. Having said that, not much has been elucidated apart from what is there in the public domain.
Q: Do you think it might have a material impact on the business—the departure of the CEO?
A: We do not have a view on this but we are more concerned with the business risks, which are associated with the microfinance lending. At the current valuations market is pricing in 25% plus RoEs and then 50% plus growth for the five years. This comes with lot of risk, regulatory risk, sociopolitical risk etc. At the same point of time how one should value the unsecured businesses and also the scalability issues, which are associated with SKS Microfinance to be specific.
Q: Which is the key risk in your book?
A: It’s more I would like to say is the regulatory as well as the sociopolitical is the key risk one needs to look at it. We have seen, in bits and pieces, these risks getting materialised. If you look at the ministry of finance recent letter issued to the PSU banks suggesting that they should monitor the interest rates what SKS Microfinance or any other micro financial institution is charging to their customers. That essentially means that in an indirect way the government is trying to monitor how the businesses of microfinance are shaping up.
At the same point of time the kind of scale which these micro financial institutions are trying to achieve in the next five years we believe it would attract a lot of negative publicity because they will be charging higher interest rates for the rural poor for their upliftment. It s a conundrum and then anybody can sensationalize such kind of issues for their vested interests.