How Did Microfinance Companies Perform This Second Quarter? A Thorough Comparison

Microfinance companies are 'D' classified banks licensed by NRB which targets individuals and small businesses that lack access to conventional banking services. The prime objective of microfinance companies is to provide micro-credit and other financial facilities to underprivileged people with little or no capital.

Microfinance companies comparatively have a minimum paid-up capital, so the supply of shares is very low which makes them the most preferred investment sector in the Nepalese stock market.

The second quarterly report of all microfinance has been published recently. With available data from their Q2 reports, we can analyze their performance, financial position, growth, and many more. But there are so many reports to look at, read and analyze which might be hectic and time-consuming.

Sharesansar has picked the most important metrics to help investors analyze the companies and compare each company with its peers. Therefore, in this article, we will be focusing on the comparison of the most important metrics which will give you as an investor an overview as to which companies are investment-worthy. So, let's take a deep look into it.

Net Profit:

Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has reported the highest net profit in this quarter with a total of Rs. 49.84 crores. CBBL is closely trailed by Nirdhan Utthan Laghubitta Bittiya Sanstha (NUBL) with a profit of Rs. 49.40 crores. Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) has secured the third position with a net profit of Rs. 45.81 crores.

In this quarter 14 companies have reported a decline in their net profit as compared to the corresponding quarter of the previous year.

Provision:

As per the Q2 of the Fiscal year 2078/79, Swabalamban Laghubitta Bittiya Sanstha Limited (SWBBL) has created the highest provision for possible losses which is Rs. 31.93 crores. On the contrary, Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) hasn't allocated any funds for provision.

The average provision for losses in microfinance sectors is Rs. 4.16 crores.

Capital:

In terms of share capital, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has the highest capital of Rs. 232.41 crores, followed by Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with Rs. 219.50 crores.

Support Laghubitta Bittiya Sanstha Limited (SMB) has the lowest capital of Rs. 8.58 crores.

Reserve:

Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has the highest reserve amounting to Rs. 240 crores. After CBBL, Sana Kisan Laghubiita Bittya Sanstha Limited (SKBBL) has a reserve of Rs. 227.65 crores.
Gurans Laghubitta Bittiya Sanstha Limited (GLBSL) has the lowest reserve of Rs. 2.76 crores as per the Q2 report of the fiscal year 2078/79.

Companies with optimal reserves are considered secure and financially stable.

Borrowings:

In the context of borrowings, Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) comes in the first position with total borrowings of Rs. 22.61 Arba. NIC Asia Laghubitta Bittiya Sanstha Limited (NICLBSL) and Mero Microfinance Laghubitta Bittiya Sanstha Limited (MERO) are in second and third positions with borrowings of Rs. 19.69 Arba and Rs. 11.35 Arba respectively.

The industry average borrowings stand at Rs. 4.63 Arba.

Deposits:

Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has collected the highest amount of deposit from its customers which amount to Rs. 24.51 Arba. CBBL is followed by Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with a total deposit of Rs. 17.05 Arba. Similarly, Swabalamban Laghubitta Bittiya Sanstha Limited (SWBBL) has the third-highest deposit with a deposit figure of Rs. 11.27 Arba.

Among all microfinance companies, 4 companies have no deposit in their books, since they all are wholesale microfinance companies. The companies have been disbursing loans from borrowings and equity financing.

Loans and Advances:

As per the reports, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has disbursed the highest amount of loan of Rs. 28.72 Arba. CBBL is followed by Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) with loans to its customer worth Rs. 26.79 Arba.

Till this quarter of the fiscal year, a total of Rs. 3.93 Kharba of loan has been disbursed by all the microfinance combined.

Net Interest Income:

Net interest income is the difference between the revenue a bank earns from its interest-bearing assets and the expenses of its interest-bearing liabilities. High Net Interest Income indicates the investment efficiency of any financial company.

Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has a net interest income of Rs. 112.10 crore which is the highest among all microfinance companies. Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) comes in the second position with a net interest income of Rs. 106.35 crores.

Gurans Laghubitta Bittiya Sanstha Limited (GLBSL) has the lowest net interest income of Rs. 3.51 crores.

Non-Performing Loan (NPL):

In terms of non-performing loans, First Microfinance Laghubitta Bittiya Sanstha Limited (FMDBL) has reported an NPL of 0.00%. RMDC Laghubitta Bittiya Sanstha Limited (RMDC) has reported an NPL of 0.05%. 

The highest NPL is reported by Support Laghubitta Bittiya Sanstha Limited (SMB) with an NPL of 33.74%.

Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has not unveiled its NPL figure.

Capital Adequacy Ratio (CAR):

According to the Q2 reports of the fiscal year 2078/79, RMDC Laghubitta Bittiya Sanstha Limited (RMDC) has reported the highest Capital Adequacy Ratio of 22.50%. RSDC Laghubitta Bittiya Sanstha Limited (RSDC) has a CAR of 18.50%.

Both, Suryodaya Laghubitta Bittiya Sanstha Limited (SLBS) and Sabaiko Laghubitta Bittiya Sanstha Limited (SABSL) have reported the lowest Capital Adequacy Ratio of 8.59%.

Earnings per Share:

Jeevan Bikas Laghubitta Bittiya Sanstha Limited (JBLB) has reported the highest EPS of Rs. 132.04. Mahila Laghubitta Bittiya Sanstha Limited (MLBSL) and Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) have second and third-highest EPS of Rs. 110.97 and Rs. 108.50 respectively.

The average EPS in the microfinance sector is Rs. 42.79.

Book Value Per Share:

As per the second quarterly report, Jeevan Bikas Laghubitta Bittiya Sanstha Limited (JBLB) has the highest book value per share of Rs. 383.07. JBLB is followed by Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) with a book value of Rs. 277.64.

Likewise, the lowest book value is reported by Manakamana Smart Laghubitta Bittiya Sanstha Limited (MKLB) which is Rs. 119.86.

Price to Earnings:

Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) has reported the lowest Price to Earnings ratio of 20.14. Kalika Laghubitta Bittiya Sanstha Limited (KMCDB) comes second with a P/E ratio of 21.62.

The highest PE ratio: 109.16 is reported by Manakamana Smart Laghubitta Bittiya Sanstha Limited (MKLB). As per the second quarterly report, the industry average is 43.95.

NOTE: Above P/E is calculated by taking the quarter-end price. Investors are requested to calculate the P/E with the current market price before making an investment decision.

Conclusion:

With economic activities coming back to normal and ease in covid restrictions, most microfinance companies have managed to increase their net profit compared to the previous corresponding quarter. However, it will be more tactical to look at the above figures and indicators from a macro perspective. Thus, the compiled data of 48 listed microfinance companies is presented in the table below.

The scope of fundamental analysis should not be limited only to the company's financial report. Further, analysis of the overall economy, macroeconomic indicators, liquidity situation, and sectoral analysis should be carried out to make rational investment decisions.