CRISIL COMPANY REPORT | 1

SKS Microfinance Ltd

GICS Industry: Consumer Finance l Sub Industry: Consumer Finance l Website: www.sksindia.com

NSE Ticker: SKSMICRO

Bloomberg Ticker: SKSM: IN

Face value / Share: 10.0

Div. Yield (%): 0.0

CMP (as on 23 Jun 2011 Rs/Share) 344.9

52-week range up to 23 Jun 2011 (Rs) (H/L): 1,491.5/255.0

Market Cap as on 23 Jun 2011 (Rs mn): 24,941

P/BV (x): 2.3

Div. Yield (%): 0.0

Shares outstanding (mn): 72.3

Free Float (%): 63.1

Average daily volumes (12 months): 678,792

Beta (2 year): N.A

Key Stock Indicators

SKS Microfinance Limited (SKS) was incorporated in 2003 as a private limited company, for taking

over the microfinance activities of Swayam Krishi Sangam (SKS), a society that was registered in

1997 and began operations in 1998. SKS is a non-banking finance company (NBFC) engaged in

providing microfinance services to individuals from poor segments of rural India. SKS distributes

small loans in the Rs 2,000-12,000 range to poor women so that they can start or expand simple

businesses and increase their income.

KEY HIGHLIGHTS

Indias largest microfinance institution

SKS is the largest microfinance institution in India in terms of total value of loans outstanding,

number of borrowers and number of branches. It has a member base of 7.3 mn and total

disbursements worth more than Rs 140 bn as on March 31, 2011. The company witnessed a robust

CAGR of 105% in its member base, 120% in its loan disbursements and 113% in its total outstanding

loan portfolio between FY06 and FY11. Total loans outstanding increased at a CAGR of 137.8% from

Rs 918.90 mn as of March 31, 2006, to Rs 29.36 bn as of March 31, 2010.

Pan-India presence with diversified portfolio

The companys microfinance operations are spread over 19 states with 2,379 branches as on March

31, 2011. The number of branches grew at a CAGR of 97% between FY06 and FY11. Its state wise

gross loan portfolio mix is Andhra Pradesh 34.2%, West Bengal 13.7%, Karnataka 10.8%, Orissa

8.8%, Maharashtra 6.8%, Bihar 6.1% and other states 19.60%. Its broad footprint allows the

company to lend in almost all geographies of India. SKS offers products and services such as income

generation loans (IGL), mid-term loan (MTL), mobile loans, sangam store loans, housing loans and

productivity loans. It also offers access to insurance products and loans to finance them.

New business initiatives taken during FY10

In FY10, SKS entered into a strategic relationship with Nokia and Bharti Airtel wherein the

microfinancer would provide loans to members to buy Nokia mobile phones and avail mobile

connectivity from Airtel. The company has an agreement with Metro Cash & Carry India Pvt Ltd

(Metro) and Future Agrovet Ltd to provide working capital finance to the members operating local

retail shops or kirana stores that purchase supplies from the companies on a wholesale basis. The

company also inked a deal with HDFC for providing loans to its members for construction,

improvement and extension of their homes.

KEY RISKS Increasing competition in microfinance industry

Interest rate risk, liquidity or funding risk

Changes in government policies and regulations

Late payment or non-payment of loans by borrowers

YTD 1-m 3-m 12-m

SKSMICRO -68 -1 -38 -68

NIFTY 1 -1 -3 0

Returns (%)

Mar-08 Mar-09 Mar-10

Net Interest Income (Rs Mn) 952 3125 5966

Non Interest Income (Rs Mn) 184 471 738

PAT (Rs Mn) 167 802 1740

Capital adequacy ratio (%) 24.8 39.0 28.6

EPS (Rs) 5.5 18.0 32.8

Book value 46.4 137.4 146.7

P/E (x) N.A N.A N.A

P/BV (x) N.A N.A N.A

ROE (%) 12.2 18.6 21.7 n.m.: Not meaningful

Note:

1) YTD returns are since Apr 01, 2010 to Jun 23, 2011.

2) 1-m, 3-m and 12-m returns are up to Jun 23, 2011.

Indexed price chart

Shareholding (As on Mar 31, 2011)

Key Financial Indicators

Stock Performances vis--vis market

CRISIL COMPANY REPORT | 2

SKS Microfinance Ltd BACKGROUND

SKS was incorporated in 2003 as a private limited company to take over the microfinance activities of Swayam Krishi Sangam, a society that was registered in 1997 and

began operations in 1998. In 2005, the company obtained certificate of registration from RBI to commence the business of an NBFC without accepting public deposits. It

was converted from a private limited company to a public limited company with effect from May 2009.

SKS provides microfinance services to women in the lower income segment predominantly located in rural areas in India. These loans are provided to members for use in

their small businesses or other income generating activities and not for personal consumption. The company provides loans to individual members (women) in a five-group

known as joint liability group. SKS continues to maintain repayment rates of more than 99% on collateral-free loans due to its disciplined methodology and strong group

lending model. During the five years from FY06 to FY11, SKS expanded from 201,943 members in five states to ~7.3 mn members in 19 states. In the same period, the

number of branches increased from 80 to 2,379. SKS came out with an initial public offer (IPO) in July 2010 and offered 16.79 mn equity shares of Rs 10 each to augment its

capital base and meet future capital requirements. The total number of employees grew from 574 in 2006 to 21,154 at the end of March 2010.

COMPETITIVE POSITION

Peer Comparison

SKS Microfinance

Ltd.

Shriram City Union

Finance Ltd

Rural Electrification

Corporation Ltd

Mar-10 Mar-10 Mar-10

Net Interest Income (Rs Mn) 5,966.2 5,166.9 26,180.7

Non Interes t Income (Rs Mn) 738.2 1,231.9 1,836.3

PAT (Rs Mn) 1,739.5 1,942.6 20,027.0

Capi ta l adequacy ratio (%) 28.6 26.3 16.1

EPS (Rs) 32.8 41.2 23.3

Book va lue 146.7 202.8 112.4

P/E (x) N.A 10.8 10.7

P/BV (x) N.A 2.2 2.2

ROE (%) 21.7 22.8 23.2

n.m: Not meaningful

FINANCIAL PROFILE

Growth in disbursements boosts NII, net profit doubles in FY10

The company registered a healthy ~91% growth in NII in FY10. NII stood at Rs

5.96 bn, up from Rs 3.12 bn in FY09. This increase is primarily due to increase in

interest income by ~71% on the back of ~70% increase in disbursements. The

gross loan portfolio outstanding rose to Rs 24.56 bn in FY10 from Rs 10.51 bn in

FY09. Total income grew ~73% over the previous year in FY10. This was mainly

on account of growth in NII by ~90%, fee based income by ~150% and other

income by ~78% over the previous year.

SKSs pre-provisioning profit (PPP) stood at Rs 3.39 bn in FY10, up ~128% from

Rs 1.48 bn in FY09. This was on account of growth in total income and a decline

in operating expenses as a percent of total income to 49.38% in FY10 from

58.60% in FY09.

Net profit of the company stood at Rs 1.74 bn in FY10 from Rs 802 mn in FY09, a

significant growth of ~117%. This was a result of increase in disbursements

following increase in the number of branches and increase in number of field

staff.

Units Mar-08 Mar-09 Mar-10

Net Interest Income Rs million 952 3125 5966

Non Interest Income Rs million 184 471 738

Total Income Rs million 1700 5540 9588

Pre-provisioning profit (PPP) Rs million 378 1489 3394

PAT Rs million 167 802 1740

Net Interest Income growth Per cent 272.6 228.3 90.9

Non Interest Income growth Per cent 213.9 156.5 56.8

Total Income growth Per cent 272.3 225.9 73.1

PAT growth Per cent 354.7 381.2 116.8

Capital adequacy ratio Per cent 24.8 39.0 28.6

ROE Per cent 12.2 18.6 21.7

Key Financial Indicators

INDUSTRY PROFILE NBFC

Apart from commercial banks and co-operative credit institutions (urban and rural), the financial system in India consists of a wide variety of non-bank financial institutions,

such as non-bank financial companies (NBFCs), financial institutions and primary dealers. NBFCs, the largest component of such institutions, can be distinguished from

banks with respect to the degree and nature of regulatory and supervisory controls. There are two broad categories of NBFCs based on whether they accept public

deposits, namely, NBFC-Deposit taking (NBFC-D) and NBFCs-Non Deposit taking (NBFC-ND).The total assets of NBFCs registered a significant growth during 2010-11, mainly

on account of increase in the business of asset finance companies.

CRISIL COMPANY REPORT | 3

SKS Microfinance Ltd

ANNUAL RESULTS

Income Statement Balance sheet

(Rs million ) Mar-08 Mar-09 Mar-10 (Rs million ) Mar-08 Mar-09 Mar-10

Liabilities

Net Interest Income (Rs Mn) 952 3125 5966 Equity Capital 443 571 645

Reserves 1614 6012 8821

Non Interest Income (Rs Mn) 184 471 738 Shareholders Funds 2057 6583 9466

Borrowings 7898 19868 26947

Total Income 1700 5540 9588 Deferred Tax Liabi lity 5 0 0

Total Current Liabi lities 769 3721 3684

Pre- provisioning profit (PPP) 378 1489 3394 Total Provisions 94 151 1706

Sources of funds 10825 30324 41803

Provisions 37 110 583 Assets

Loans & Advances 7921 14293 29905

PBT 289 1241 2668 Investments 0 0 2

Cash & Bank Balances 2752 15470 9735

Tax 120 436 929 Deferre