SKS: A fresh start or branding gimmick?

SKS Microfinance stock today rose 5 percent in early trade after the microfinance’s chairman Vikram Akula resigned last evening. But the stock soon fell by 3 percent, below yesterday’s close.

It is still difficult to asses whether Akula’s stepping down is good news or not. Puranam Hayagreeva Ravikumar, the new non-executive chairperson of SKS who will lead the company till a new chairman is selected, says the Akula’s exit has not been forced move. He told NDTV Profit in an interview that he is moving on to bigger things. Ravikumar said, “He is passionate about microfinance and SKS is no longer going to be only a microfinance company… We will be in the financial inclusion space.”

In fact, this is the biggest change that SKS Microfinance is going to bring. They will no longer remain a purely microfinance player and will venture into insurance, health, payment related services etc. In an interview to Business Standard , Ravikumar said, “This expansion in business would be a strategic shift for SKS. It would be the universal finance company for the rural population.”

But one must be cautious at such claims. SKS was not a purely microfinance player anyway. As early as 2009, they were selling cell phones for Nokia and products for Metro Cash and Carry. During their IPO, they were already in talks with HDFC to get into the home loan segment. This is not even new as its peers Spandana Sphoorty, Asmitha Microfinance and others are trying to get into gold loans and other financial segments. Microfinance is clearly not doing great and diversification is required. So is this really a shift in the way SKS functions or a strategic shift in how they promote themselves. As Vinod Khosla had already complained that SKS failed because of wrong branding. Is it this branding they are trying to get right?

If it is the branding they are looking at, there could be two main reasons. First is to give its shareholders a clear message it is serious about its business. The share price has fallen from Rs 1,490 to Rs 110 in about an year. The management is giving out a clear message to the people that they will revamp how the company functions, even if it means by ousting the original promoter.

Second is the issue of banking licence. The RBI guidance make it clear that a clean record and good corporate governance is crucial to obtain a licence. SKS microfinance had also showed interest in applying for the licence to the Reserve Bank. So could this move be to purge itself of its past and start afresh? Given that logic, reassuring investors that it is not just a microfinance player but has all-round presence in financial space makes sense as well. Whether this will work on not, we must wait and watch.

Read more at: http://profit.ndtv.com/news/show/why-did-vikram-akula-resign-from-sks-microfinance-189298?cp