SKS Microfinance CFO says sees turnaround by Q1 FY13

Security personnel stand guard in front of SKS Microfinance's head office in Hyderabad November 25, 2010.

MUMBAI (Reuters) - SKS Microfinance (SKSM.NS), the only public microfinance company in India, hopes to turn to profit by April-June after a third straight quarterly loss in FY12, on better recoveries and greater reach beyond Andhra Pradesh state, a top official said.

India's microfinance sector came under severe stress after Andhra Pradesh, the industry hub at the time, imposed a set of restrictive laws in October 2010 curtailing microfinance activity in the state, scaring away banks and investors and prompting many small to mid-sized lenders to the poor to shut shop.

"The provisioning and write-offs on the Andhra Pradesh (AP) portfolio has contributed to the loss," Dilli Raj, the chief financial officer of the microfinance firm, told Reuters.

"In the first quarter of financial year 2013, we should return back to profits," he added.

SKS posted a Q3 loss of 4.28 billion rupees, reflecting the sliding fortunes of the country's beleaguered microfinance sector.

The loss is its third in a row following two earlier quarters of fiscal year 2012.

Since the turmoil SKS has been beset with bad loans, boardroom struggles and its stock plunged after a successful IPO in August 2010 which raised $358 million. Eventually the trouble saw the exit of its high-profile founder Vikram Akula in November 2011.

Akula, a Yale-educated microfinance pioneer who founded SKS in 1997, was named one of the 100 most influential people in the world by Time magazine in 2006, and attracted investors such as George Soros and Goldman Sachs to SKS.

Future write-offs from SKS's portfolio exposure to Andhra Pradesh, which is currently worth about 4.8 billion rupees, can be offset by a tax shelter of 5 billion rupees that the company has not yet taken advantage of, Raj said.

"So, if we were to use that to adjust it to the AP portfolio exposure, then there is no additional hit to the AP portfolio P&L account," he said.

The sector is now awaiting passage of a federal law that would make the central bank the sole regulator of the sector, overriding the restrictions imposed by Andhra Pradesh state.

Last December, cash-strapped SKS said it would raise up to 5 billion rupees through a share sale to institutional investors by March 2012, and raised the investment limit of foreign institutional investors in the company to 74 percent from 24 percent.

However, skepticism persists.

It will take some time for banks to resume lending but if they are able to raise capital and sort out personnel issues, then there's a good potential upside, said Anurag Agarwal, co-founder of Hyderabad-based Intellecap, a consulting firm for microfinance operators.

"I think it'll be a stretch for them to turn profitable in the first quarter of fiscal year 2013," he added, citing issues such as high operational and funding costs, personnel issues and repayment problems in states other than AP such as West Bengal and Madhya Pradesh.

On Thursday, the company's stock ended the day up 0.7 percent in a firm Mumbai market that closed up 1.2 percent. In 2011, the stock lost a whopping 88 percent of its value.

"We have put the AP problem behind us. The worst is over. The idea is to grow the non-AP portfolio, which is posting a collection rate of 96 percent," Raj said.

(Editing by Harish Nambiar)