An Exit, And A Makeover

On Wednesday, Vikram Akula, the charismatic founder and chairman of SKS Microfinance, beat a quiet retreat.  Through the course of a three-hour board meeting in Mumbai at the offices of Sandstone Capital, one of the private equity investors in SKS, Akula stepped down in favour of P.H. Ravikumar, an independent director who has been appointed interim non-executive chairman. His exit draws the curtains on a speculated protracted battle of personalities within the firm that has kept the country's only listed microfinance institution in newspaper headlines for all the wrong reasons (see ‘The Decline And Fall of SKS Microfinance', BW 30 May). But Akula's exit alone will not be enough to restore SKS's credibility, especially with retail shareholders.

In the 13 months since the Hyderabad-based MFI debuted on the bourses, its stock price has declined nearly 90 per cent (see ‘A Sad Decline'). Against its issue price of Rs 985 per share, it is currently trading at about Rs 110 per share. Within a month of its debut, the stock actually gained 51 per cent to touch a high of Rs 1,490.70 per share. "At the time companies like SKS were being valued more than banks," says a stockmarket analyst in Mumbai. Shortly after, things began to unravel at India's most celebrated MFI.

In October, SKS and other MFIs active in Andhra Pradesh were accused of driving microfinance borrowers to suicide because of tough loan collection tactics. This led the state government to issue an ordinance to regulate MFIs, which chiefly restricted their ability to collect dues routinely. Given that about a fourth of SKS's loan book is in Andhra Pradesh, it was a body blow for the company.

The same month, the company abruptly fired CEO and managing director Suresh Gurumani and reinstated Akula as executive chairman (he was non-executive chairman till then). The markets reacted sharply to these developments and the stock has not recovered since then. "The market is clearly worried about the sustainability of the business model and management," says Shuja Siddiqui, vice-president at Motilal Oswal Wealth Management.



The current leadership team at SKS, steered covertly by private equity investors including Sandstone Capital and WestBridge Capital Partners, now plans to change the company's business model. It wants to shed the MFI tag and become a rural market-focused financial services company. Newspaper reports suggest that parlays are on with leading domestic banks to enable this transition.

An SKS spokesperson declined to comment on the company's business repositioning plans. The exercise may help SKS's private equity investors protect their short-term returns. Whether it will benefit the company and its rural beneficiaries in the long term remains to be seen.

(This story was published in Businessworld Issue Dated 05-12-2011)