IPO ANALYSIS OF SANA KISAN BIKAS BANK LIMITED

SANA KISAN BIKAS BANK LIMITED

Note: IPO applied for more than 50 units should be divisible by 10 and when applied for more than Rs 50,000 the payment should be made through account payee check.

Issue Manager: Elite Capital Limited

Introduction of Sana Kisan Bikas Bank Limited

Sensing a need for a separate financial institution to carry forward the work related to Sana kisan bikash program more effectively and efficiently, Small Farmers Development Bank (Sana Kisan Bikas Bank) as an apex microfinance bank was established  in July 2001.

The formation of this organization was taken place under the major investment  of Agriculture Development Bank along with the investment from 21 Small Farmers Cooperatives Ltd. (SFCL), Nepal government and Nabil Bank Limited.

The bank’s major portion of invested shares of the Agricultural Development Bank and the entire share holdings of the Government of Nepal, have been divested to 231 SFCLs.

The bank is ‘D’ category financial institution licensed by Nepal Rastra Bank, which was incorporated under the Company Act. And licensed under the Bank and Financial Institutions Act (BAFIA) 2006.

The bank provides wholesale credit along with the technical support services mainly to the Small Farmers Cooperatives Ltd. (SFCLs) and similar types. In current scenario, this bank has started providing wholesale credit to other cooperatives and Microfinance institutions (MFIs) too in order to expedite access to microfinance services for the low income people especially living in the hills and mountains of the country. Along with it the bank also monitors and supervises client MFIs' activities to ascertain adherence to prudential and non prudential regulations.

The Bank has been registered with authorized capital of NPR 240 million and currently holds issued capital of NPR 200 million and paid up capital of NPR 140 million. The Bank is firmly motivated to, establish itself as a financially viable micro finance wholesale bank owned by SFCLs and similar rural MFIs, to substantially improve the quality of life of the rural poor.

The bank registered office is situated at ward no 35,  Kathmandu, Nepal, which is also the central office of the Bank. The bank has been serving in all geographical regions with the incorporation of 8 regional offices. To provide financial and technical services with convenience and ease, regional offices in Birtamod (for Mechi), Itahari, Sunsari (for Koshi), Janakpur, Dhanusha (for Janakpur and Sagarmatha), Hetauda, Makwanpur (for Narayani), Gajuri, Dhading (for Bagmati), Butwal, Rupendehi (for Lumbini), Pokhara, Kaski (for  Gandaki and Dhaulagiri), and Nepalgunj (for Rapti, Bheri, Karnali, Seti and Mahakali) have been established. Regional offices provide financial and technical assistance to SFCLs and other microfinance institutions.

Major shareholders in Sana Kisan Bikas Bank Limited as per the Prospects

Board of Directors of Sana Kisan Bikas Bank Limited

Mr.  Khem Bahadur Pathak,  Chairman
Qualification: Bachelor of Arts (B.A.)
Work Experience: Agriculture

Mr. Sagar Chandra Joshi,  Member
Qualification:  Master of Public Administration (MPA), Agriculture Graduate
Work Experience: 29 years of working experience in Banking and Financial Institutions.

Mr. Heera Lal Nepal, Member
Qualification: Master of Commerce (M. Com)
Work Experience: 29 years of working experience in Banking and Financial Institutions.

Mr. Ishwor Man Shrestha, Member
Qualification: Bachelor of Commerce (B. Com)
Work Experience: 29 years of  working experience in Banking and Financial Institutions.

Ms. Chadani Dhakal, Member
Qualification: Literate
Work Experience: Agriculture

Mr. Dharma Raj Aaterya, Member
Qualification: Intermediate
Work Experience:  Agriculture

Dr. Uma Kanta Silwal, Member
Qualification: Doctor of Philosophy in Economics (PhD)
Work Experience: 26 years of teaching experience in Tribhuwan University

Board of Directors (BOD) Representation as per Prospectus.

Management Team of Sana Kisan Bikas Bank Limited

Mr. Jalan Kumar Sharma, Chief Executive Officer
Qualification: Masters of Administration (MBA)
Work Experience: 6 years of experience as CEO of Sana Kisan Bikas Bank. He has 27 working experience in Agriculture Development Bank from Branch Manager to Acting General Manager. And 2 years of experience in BP Koirala Swosthya Bighan Pratisthan as Registrar.

Mr. Jhalendra Bhattrai, (Senior Manager)
Qualification: Executive Master of Administration (EMBA)
Work Experience: 8 years of working experience as senior manager in Sana Kisan Bikash Bank Ltd. and for the past 10 years he has been looking after the Management related works of the organization.

Mr. Anju Pathak, (Senior Manager)
Qualification: Master of Arts, Economics (MA)
Work Experience: 4 years of work experience in Chimmek Samaj Sewa Sanstha as Officer level. 10 years of  working experience in Sana Kisan Bikas Bank Ltd.

Capital Structure

FINANCIAL HIGHLIGHTS OF THE BANK

                                                                                                                          Figure in Rs “000”

In the initial established year, the bank had paid up of Rs 98.71 million but with the increase in the numbers of promoters, the bank paid up capital in the current scenario stands at 70% of the issued capital i.e. Rs 140 million.

The banks ownership structure consists of institutional promoters-Agriculture Development Bank Nepal (31.47%), Nepal Bank Limited (8.67%), Nabil Bank limited (4.34%) and 231 Small Farmers Agricultural Cooperatives (55.52%).

With the initial public offering (IPO), the company plans to par the capital structure with that of issuing capital of Rs 200 million. And by the year of 2071/72, the bank plans to increase its paid up capital up to Rs 433.15 million. So, there will be high chances for the shareholders of this company to obtain bonus share or right share in the upcoming years.

Similarly, observing reserve and surplus figures of the past three years, it has been growing at a rate of more than 15% suggesting that the bank has been able to maintain good portfolio growth through the channel of various cooperatives, which are also the company’s shareholders, engaged in microfinance business in Nepal.

he bank loan base is mainly focused on the wholesale lending to the SFCLs (Small Farmers Cooperatives Ltd.) and other cooperatives where SFCLs are not in existence. Through the channel of SFCLs and other cooperatives, the people of rural poor households get the access to micro finance.

As the company’s history  in the field of microfinance goes way back, it has established relationship with various entities engaged in microfinance business (as in mid –Jan -2013 SKBBL has 316 cooperative partners of which 260 are active borrowers).

And given the Nepal situation of a large number of people under the low poverty line and low penetration of MFI (Micro finance Institutions) activities in hilly areas, the bank has tapped into this opportunity which have attributed to the growth of the company’s loan portfolio by 48.14%, 68.63% and 43.01% in the past three years respectively.

Since, the bank is a micro finance company; it doesn’t have the provision to accept deposits like other financial institutions. The source of funding for the company’s lending purpose comes in the form of a loan from the Government of Nepal (GoN) or commercial banks/ financial institutions.

Currently, around 43% of its resources are in the form of low cost funds from the government of Nepal at 1% interest rate per annum. In addition, remaining 57% resources are accounted from commercial banks/ financial institutions as a deprived sector loan.

As the bank has been maintaining sound growth in the interest income and sustaining lower interest expenses, it has been able to make a hefty and continuous growth in the operating profit before provision. With the aggressive increase in the loan and advance by the company, the interest income has surged by 29.80%, 52.24% and 71.39% of the last three fiscal years respectively whereas the interest expenses growth stood at -15.29%, 70.39% and 67.91% respectively.

Looking at the net write back, the bank has made a negative write back in all the past three years respectively. But coming into the second quarter of this fiscal year, it has come to maintain a positive figure which indicate, the company is on track of recovering the bad debts of previous years.

Likewise, if we look at the Net write back/ Loan figures also, we can get idea that the company has been able to gradually decline its bad loans and has come to maintain a sound and healthy loan portfolio by the second quarter of 2069/70 than before.

Now, if we look at the net profit figure, we will find an astounding difference between the growth figure of operating profit before provision and net profit in the fiscal year 2066/67. The main reason of such alteration was the company’s obligation to maintain the provision for possible loss worth Rs 11.25 million which was nil in the previous fiscal year.

However, coming to the following fiscal years the company has come to maintain a higher growth in net profit than that of operating profit before provision which points the bank is recovering its bad debt and its exposure to new bad debts in current scenario is less.

If we look at the Net Worth of the company, it has impressively grown to Rs 348.95 by the end of the previous fiscal year. The annualized second quarter data of the company show that its net worth stands at Rs 462.19 which is even higher than all the commercial banks.

Now, looking at the EPS, ROA and ROE, it has maintained a steady and remarkable growth. The second quarter figure of ROE indicates that the company returns rate is higher than the market interest rate and even higher than most of the commercial banks also, which is also pointed out by its annualized EPS of Rs 61.92.

In conclusion, the bank overall portfolio over the years has become much stronger and sound. Likewise, with more than 11 years of engagement in the field of micro finance, it has tapped into vast channels and opportunity provided by the Nepal’s economic, social and geographic scenario. Looking at its financial health soundness, it even comes out better than some of the blue chip companies of Nepal. So, investing in the IPO of this company will really be a very good investment opportunity.

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