December 30, 2018 | Investopaper
The brief company analysis of Nirdhan Utthan Laghubitta as performed by Investopaper team is as follows:
Nirdhan Utthan, “the laghubitta bittiya sanstha for the upliftment of the poor” is microfinance established in November 1998 under Company Act of Nepal 1997 (now Company Act 2006). Nepal Rastra Bank granted a license in April 1999 to undertake banking activities under the Development Bank Act 1996. It started its formal operation from July 1999. Now, operated under Bank and Financial Institutions Act 2006, Nirdhan Utthan provides microfinance services such as Loans, Deposits, Micro-insurance and Remittance services to low-income families of Nepal. NUBL follows group lending based on Grameen Bank, Bangladesh model as well as group lending based on NUBL developed Self-Reliant Group model. It has a network of 178 branch offices spread over all 77 districts of Nepal.
Board of directors and the Management team of Nirdhan Utthan Laghubitta:
The board of directors includes:
The management of Nirdhan Utthan Laghubitta is led by Mr. Janardan Dev Panta. The management team includes:
Financial Highlights of Nirdhan Utthan Laghubitta: Last 5 Years
Paid-up capital & Net profit:
The current paid-up capital stands at Rs. 1.20 Arab. The capital has increased in the past five years by 33.03% annually. NUBL has consistently increased the capital by providing a good bonus to the shareholders.
The microfinance has achieved satisfactory growth in net profit. Net profit has risen by an impressive 21.24% annually. But due to the increase in capital by 33.03% annually in the past 5 years, the increased net profit is not reflected in earnings per share (EPS)of the company. The net profit as of Ashad end, 2075 stands at Rs. 54.32 crores.
Deposits and loans:
There has been a huge increment in deposits and loans in the past five years. The microfinance has grown the savings & deposits by 35.64% and increase its loan portfolio at 25.83 % annually. The deposits and loans stood at Rs. 8..57 Arab and Rs. 15.45 Arab at the end of Ashad 2075.
Return On Equity(ROE) & Return On Assets(ROA):
The ROE and ROA of the microfinance remain at 31.51 and 3.26 as of Ashad end 2075, which is exceptional. ROE & ROA were higher in the previous 4 years. The decrease is due to the huge increase in capital size.
EPS, MPS, P/E ratio:
The EPS and MPS reached a peak value of Rs. 95.26 and Rs. 2420 during the previous 5 years. The EPS at the end of F.Y. 2075 stands at 54.32 while the market price is at 1024. The P/E ratio is at 18.85 which is normal regarding the growth rate in profits.
Cost of funds and Non-Performing Loans(NPL):
The non-performing loans are at 0.92% which is the highest in 5 years. The increase in NPL can be attributed to double lending that has become a problem in the microfinance sector.
The cost of fund of microfinance is 8.62 which is also at the highest level in the past 5 years. The high cost of funds is due to the increase in the cost of borrowing and the cost of deposits. The ongoing credit crisis in the entire banking industry has increased the cost of the overall microfinance sector also.
NUBL has provided exceptional dividends to the shareholders ranging from 31% to 80%, in these five years. The microfinance declared a 42.11% dividend this year.
The market capitalization of NUBL has increased consistently in 5 years. The microfinance was valued at Rs. 19.63 billion by the investors in 2073/74, the highest market valuation till now.
Financial Highlights of Nirdhan Utthan Laghubitta: 1st Qtr 2075/76
The 1st quarter of this fiscal year for Nirdhan Utthan Laghubitta seems satisfactory. The deposits and loans grew by almost 35% & 25% from the previous year. Net profit also grew by 20%. However, EPS decreased by 28% due to the increase in capital by 67%(by bonus shares). The ROE and ROA stand at 21.95 and 3.08. The NPL increased by 142% to 1.02. The cost of funds decreased slightly by 2.64% to 8.85.
Past investment returns of NUBL stock:
NUBL has provided healthy returns to the shareholders. Dividends have been highly satisfactory. Due to the overall market crash of more than 35%, NUBL also lost heavily during this period. However, considering four and half years investment horizon, NUBL shareholders doubled their investment at an annual rate of 18.15% in this period. As shown in the above table, if you had invested Rs.1,00,000 at the end of F.Y 2070/71 it would have generated the value worth Rs. 211829.78 now. This is a considerably good return despite the market crash.
Future Prospects and challenges
Nirdhan Utthan Laghubitta is one of the leading microfinance of Nepal. It is the only microfinance in Nepal which has covered the whole 77 Districts of Nepal. The management seems capable to grow the business at a steady pace. Nirdhan Utthan has shown satisfactory results in the first three months in this fiscal year. But, the future seems less exciting than the past. The expansion of quality credit seems more and more difficult due to high competition and double lending among microfinance.
The high cost of doing business is, at current, the major challenge for the microfinance. With the cost of funds at 9% and another 6-7% for management expenses, the profit margin gets thinner and thinner. The NRB directive to provide the loans at most 18% has penalized the earnings of most of the microfinance. With 15-16% cost, the microfinance has been working on 1-3% margin which is considerably lower looking at the riskiness of the business. Thus, it is highly doubtful that the microfinance will be able to generate the profit growth of the past, in the future.
Nirdhan Utthan Laghubitta, though the superstar stock of past, may not be able to maintain its stardom in the future. But, it could exceed expectations in the hands of current capable management. Everything will depend on the interest rate. If the current credit crisis in banks is resolved and interest rate decreases, then profit may skyrocket again. To the investors, the only suggestion we provide is ‘Wait and Watch‘. Things may change soon and if that happens, grabbing NUBL stock will be the best thing you will do.
(Investments are subject to market risks and investors are advised to do personal homework before making any investment decision. This material is just a guideline for the investors to do further investigations)