Arman Financial Services Ltd (BSE Code 531179) - HBJ Capital's (MPS Unit) Business Insight Penny...

8/7/2019 Arman Financial Services Ltd (BSE Code 531179) - HBJ Capital's (MPS Unit) Business Insight Penny Stock Reco for June'10

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Arman Financial Services LtdArman Financial Services Ltd was promoted with the main objective of providing a wide

spectrum of financial services. It entered into the Market of core group based Micro-financeactivity from 2008 in the Mehsana, Sabarkanta, and Ahmadabad (including Gandhi Nagar)

HBJ Capital, India

Web: www.hbjcapital.com

E-Mail: [email protected]

Call: +91 98867 36791

str ct o u arat. e company starte s ow y, owever t s now ta ng rap str es anexpanding it's loan portfolio at an exponential rate of growth.

HBJ Capitals Business Insight stock for the month of June 2010


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Best Buying Price

2 Phase Buying Strategies Suggested [Always buy in SIP ways]

1st Phase : Buy at the current price range Rs 23-25 [50% of investment]

2nd Phase : Add if the price falls down to Rs 16-18 [50% of investment]

>>>Expect at least 10-12 times returns in next 3 years time frame!!!

Note:- Based on the advance mail/sms communication sent to thesubscribers on 5thJun10, we have reco above buying price/strategies.


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HBJ Cap is growingfaster than ever.

HBJ Capital can be your50x in 3yearsinvestment.Ask how?

Aim to become #1 -E uit Research

What Next?HBJ Capital Specialists in discovering multibagger stocks is launchingmore & more innovative products & services with single focus on long term

wealth creation!!!

Company in Indiaby 2012, the same

year we haveplanned to get itlisted at BSE/NSE.


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Table of Contents

From the Desk of CEO, HBJ Capital (Page 5#) Overview : Arman Financial Services Ltd (Page 7#)

Microfinance Industry Overview (Page 10#)

Arman Financial Services Ltd (Page 20#) Peer Comparison (Page 29#) Revenue Guidance By the Management (Page 32#) Financial Analysis (Page 36#) The Management (Page 40#) Shareholding Pattern (Page 43#) Buying Strategy (Page 45#) Investment Rationale (Page 47#) Risks Involved (Page 49#)


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d.

Microfinance as a sector hasbeen growing at a very

impressive growth rate. The

sector is completely supplydriven and the demand isfar outstripping the supply.Considering that the sectoras such is growing at a veryhigh CAGR of 50%, it wouldtake at least 7 years to fulfill

the current demand.

Dear Investors,

Microfinance is the supply of small loans and other financial

services to people with a low income who would otherwise haveno access to credit from traditional banks and financialinstitutions. Microfinance is seen by some as a viable solution toreduce poverty, enabling those at the Bottom of the Pyramid toreshape their destiny. The value of the loans generally ranges from1$ to a maximum of 200$. The money is lent from localorganizations, so called Microfinance Institutions (MFI), whencertain conditions are met.

Dear Investors,

Microfinance is the supply of small loans and other financial

services to people with a low income who would otherwise haveno access to credit from traditional banks and financialinstitutions. Microfinance is seen by some as a viable solution toreduce poverty, enabling those at the Bottom of the Pyramid toreshape their destiny. The value of the loans generally ranges from1$ to a maximum of 200$. The money is lent from localorganizations, so called Microfinance Institutions (MFI), whencertain conditions are met.

From the desk of CEO, HBJ Capital

ons er e s ory o u a a e , a s ng e mo er w o ves wher four children in a village in India. With a $50 loan, she boughta sewing machine. She made clothes, sold them for a profit, andrepaid the loan with interest. She was also able to save somemoney to buy books and send her children to the local school.This is microfinance in action.

Sometimes, a small amount of seed money, a microloan is all ittakes to break the cycle of poverty. The growing microfinancemovement is planting seeds of health and financial independencearound the world, and both borrowers and investors are reapingthe benefits.

ons er e s ory o u a a e , a s ng e mo er w o ves wher four children in a village in India. With a $50 loan, she boughta sewing machine. She made clothes, sold them for a profit, andrepaid the loan with interest. She was also able to save somemoney to buy books and send her children to the local school.This is microfinance in action.

Sometimes, a small amount of seed money, a microloan is all ittakes to break the cycle of poverty. The growing microfinancemovement is planting seeds of health and financial independencearound the world, and both borrowers and investors are reapingthe benefits.


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Contd..

Traditionally banks were unable to serve the base of the pyramid, because the fixed costs (assessment of potential borrowers, their repayment prospects and security; administration of outstanding loans, collecting from

delinquent borrowers, etc) were too high in the case of small loans. Also poor people typically have few assets toserve as collateral. Now here comes the MFI in action.

Microfinance is the hotspot of private equity deals. Can you believe that more than 40% of the private equitymoney that came into India in the last few months went into the Microfinance sector? But the truth remains that,in spite of huge money flows into the sector, the sector is able to address only 10% of the total demand in thecountry.

The total demand for microfinance is currently estimated at around 60 billion USD, out of which not even 6 billion USD isaddressed. In such a high growth sector, we are happy that we have found a very good investment avenue or our subscribers.

MPS is proud to bring you the Business Insight pick of the month ArmanFinancial Services Ltd.

Regards,

Kumar Harendra, CEO, HBJ Capital Services Pvt Ltd

#912, 1st "F" Main Road, Girinagar 2nd Phase, BSK 3rd Stage, Bangalore 85

Call : +91 98867 36791 or +91 080 65681134, Mail : [email protected] , www.hbjcapital.com


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Overview Arman Financial Services Ltd


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Some key stats.. PE =16.41 Going forward, the revenue is expected toincrease multi-fold as per the revenue guidance shared bythe company.

Book Value = Rs 17.98 - The current stock price at Rs32-33 is trading at about its two times its book valueprice, which is again very low considering the industrystandards.

Shareholdings : No Of shares [% Share Holding ] Total Foreign: 4.3lakhs [10.7%]

Total Institutions: 0 [0%] Total Non Promoter Corporate Holding 1.1lacs

CMP = Rs 32.70 (June25th 2010) The stock wassuggested on 5th Jun10 when it was trading atRs 23.80. Since then the stock has appreciatedby almost 40%.

52 weeks high/low = Rs 34.70/6.51 The stockrecently made a new 52 week high. As it is inthe strong bullish phase it can continue to makenew highs.

Peak share price = Rs 34.70 (17th

June 10) Always when the stock reaches its life time high [2.6%] Total Promoters 14.8 [36.4%] Total Outstanding Shares 40.8 lakhs[100 %]

Debt/Equity = 2.27 [Mar10] ROCE = 14.8% [Mar09] RONW = 9.41% [Mar09] Current Ratio = 12.02 [Mar09] Delivered Volume per day = Approx 81% BSE Code 531179

it goes into a strong bullish hase in theabsence of any resistance present.

Trading volume = Min 0.82 lacs shares (approx)per day These are early days for a company

which is soon going to create a huge impact inthe Microfinance sector.

EPS = Rs 1.98 Company has recorded anannualized EPS of Rs 1.98 .


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Microfinance Industry: Overview


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Micro finance institution

In the late 1990s, the micro-finance business was boosted by the innovative initiatives taken by non-overnment micro-finance institutions MFIs and banks. The offered micro-credit i.e. credit rovided to

poor people for financial and business services and for self-employment in rural areas.

Nevertheless, the existing banking policies, procedures and systems including deposit and loan productsremained untailored to the requirements of the poor. They required better access to services and productsrather than subsidized credit.

It was, therefore, recommended through the conclusions drawn in a study by NABARD that alternativepolicies, systems and procedures be put in place in order to boost the growth of micro-finance in India.

With the recommendations in place, commercial banks were enabled to move into rural areas, albeit theadvances given to the poor remained low.


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Contd..

To improve accessibility of the existing banking network to the poor, theSelf Help Group (SHG) - Bank Linkage Model was launched in 1992 tofacilitate empowerment of the poor.

Currently, a range of institutions in both the public sector and private- .

categorized into: formal institutions and informal institutions

The former category comprises of Apex Development FinancialInstitutions, Commercial Banks, Regional Rural Banks, and CooperativeBanks

The informal institutions that undertake micro-finance services as their mainactivity being referred to as Micro - Finance Institutions (MFIs). Whilst both

private and public ownership can be found in the case of formal financialinstitutions offering micro-finance services, the MFIs are mainly found in the

private sector.


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Profiting from the poor : The ethics of microfinance Micro finance lenders charge Interest rates of 25% to 35% from borrowers;

they justify such rates by claiming high costs in the delivery of their loans tolargely untested customers.

In India both international and Indian banks are striking partnerships withMFIs. In addition, some foreign venture funds have also entered themicrofinance field, hoping to maximize their returns. Still India'smicrofinance cup is half-empty, with more room for demonstrableparticipation by the public sector and foreign funds.

The history of rural finance is typified by the image of a nationalizedbanking system which has failed to deliver credit and, if it has, not been ableto recover it. Microfinance, by contrast, is increasingly being seen as aninnovation in lending and the panacea for rural India's indebtedness tomoney lenders.

Indian banks may soon saturate high- and middle-income customers with retail

loans and home loans, and are under pressure to move to low-income and even poorhouseholds. To do this, they are choosing to partner with MFIs, most of which havecurrent recovery rates of over 96%. Foreign banks with little or no presence outsideIndia's major metros are also looking to work with MFIs to secure their micro-lending market shares. Insurance companies too are busy wooing MFIs to linkinsurance with their loan schemes.


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While the middle and upper class seem to bear the brunt ofthe financial turmoil, the poor fail to comprehend the change,

for they hardly have anything to lose and notice no change.This rather unfortunate situation is perhaps a reality check forus all.

Microfinance still Hums, Despite Global Financial Crisis

The microfinance industry, is somewhat resistant to some of

the volatility now plaguing financial markets. Thats becausethose who borrow in small amounts from micro lenders often

..Microfinance Surviving the Economic Crisis..

work on projects unaffected by large-scale global bankingtravails.

The concept of microfinance is based on a primary principleholding that most human beings will do their best to be well

off, provided they have the required tools.

This is one of the reason, combined with a strict selection ofborrowers, why microcredit has the highest repayment rate ifcompared to all other form of loans issued by traditional

banks.


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MFI s Business modelNow Let us See how the Grameen Bank developedlending principles?

Whatever banks did, I did the opposite. If banks lent to the rich, I lent tothe poor. If banks lent to men, I lent to women. If banks made large loans,I made small ones. Banks required collateral, and my loans werecollateral-free. If banks required a lot of paperwork, my loans wereilliterate-friendly. If you had to go to the bank to get a loan, I went to thevillage. That was my strategy.

The surprising thing was that such principles worked. The rules

preconceived notions of what a good borrower would be thanwith the reality.

In fact, the very poor, though unfamiliar with formal bankingpractices, were often savvy money managers. They were quite

familiar with the concept of savings, usually keeping smallamounts of livestock or jewelry to sell in case of emergencies.And by necessity, they were often resourceful, experiencedentrepreneurs with livelihoods that depended on whatever tinyenterprises they could make work where they lived.


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Contd..

Lending Model - In terms of the lending model,

MFIs may be classified as lenders to groups or aslenders to individuals. In India, MFIs usuallya op e group- ase en ng mo e s, w c areof two types - the self - help group (SHG) modeland the joint - liability group (JLG) model.

In the SHG model, the MFI lends to a group of say5 to 20 women. Under the JLG model, loans areextended to and recovered from, each member ofthe group. The most popular JLG model is theGrameen Bank model. However, most of thelarge MFIs in India following a hybrid of thegroup models


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Microfinance in India


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Microfinance in India The Scenario.. Micro funds Monitor: The Indian microfinance penetration index

shows very low levels especially in Bihar, Madhya Pradesh,Rajasthan and Uttar Pradesh compared to extraordinary levelsreached in Andhra Pradesh, Karnataka and Tamil Nadu.

Some key facts at a glance:

Microfinance in India, through the channel of SHG-Bank LinkagePrograms (SBLPs) or microfinance institutions, served over 76million in 2009 compared to 59 million a year before.

MFIs recorded about 8.5 million clients durin the ear 2008-09 agrowth of 60% over the previous year.

More than 50 percent of low income households are covered bysome form of microfinance product

The total outstanding microfinance loans posted a growth rate of30% or 359.39 billion over the last years level of Rs 229.54 billion.

The SHG loan outstanding has increased by Rs. 71.5 billion withan addition of 6.9 million clients.


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Arman Financial Services Ltd


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Basic Details..

Arman Financial Services Ltd was promoted with the main objective of providing a wide spectrum of financial servicesboth fund and non-fund based activities such as Lease/Hire Purchase Finance, Bill Discounting, Investment in Primaryand Secondary arket, Merchant Banking, Portfolio anagement, Loan Syndication etc.

The company currently is engaged into the business of offering microfinance both unsecured (personalloans), as well as, secured lending for auto rickshaws, twowheelers, old two and four wheelers and personalloans credit.

The company entered into the Market of core group based Micro-finance activity from 2008 in the Mehsana,Sabarkanta, and Ahmedabad (including Gandhi Nagar) district of Gujarat. The company started slowly,however it is now taking rapid strides and expanding it's loan portfolio at an exponential growth rate.


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Basic Details..

The company is now determined to expand it's Micro-finance portfolio, which will be its core product andthe focus area for the future.

Arman has strategically chosen microfinance as its core activity and would be working in Gujarat. The

current operations are based in and around Ahmedabad. The Directors as well as all the staff of the Companyhave extensive knowledge and understanding of the region.

The region has large population of economically weak and socially neglected communities such as ScheduledCastes, tribal and other backward classes in its slum areas. Thus the region offers tremendous potential forthe growth of microfinance sector.

Secondly and more importantly, though Gujarat is witnessing increasing volume of economic activities, low incomefamilies still find it difficult to raise finance from banks. Local moneylenders wreak havoc in the area through usuriousinterest rates. Microfinance Institutions are still limited in this area.

The cultural and economic distinctiveness of the place offers an advantage to Arman with its expertise andknowledge of the region.


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Epoch.. ARMAN FINANCIAL SERVICE LTD

Incorporated as Pvt Ltd company in 1992

Public issue in 1995 and over subscribed by 22 times

Listed on BSE ,Ahmedabad & Jaipur stock exchange

5835 plus share holders as of now across India

RBI category A NBFC which means deposit taking

13 NBFCs Only A category in Gujarat

Self checks- having category A.

Arman has rich experience in two and three wheeler segment witha s c en e e ase n me a a . e company as a a a ase o

20,000 clients.

The company has been rated 3 different times by noted ratingagency called M-Cril and the company could secure Alpha Minustwice which is an investment grade, while the last time in March2009 the company received Alpha for its financial performance.

CRISIL recently assigned "BB/Stable" rating to the bank facilitiesof Arman Financial Services Ltd


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Arman Coverage..

At Present Arman is working in the municipallimits of Ahmedabad and Gandhinagar. It has alsostarted to work in the rural Area of Ahmedabad

including Kalol and in North Gujarat - Mahesana.

Arman has also spread its activities of MicroFinance in Baroda and Panchmahal Districts.

Arman at the end of May 2010 has in all 11Branches and adding one or two new area everymonth. Armans JLG based Microfinance model is

CURRENT

COVERAGE

we accep e y s mem ers.

Arman has opened 11 branches in Gujarat in thelast 18 months.

The company proposes to open additional 28 branches in the Financial Year of 2010-11 andfurther proposes to open 45 branches in theFinancial year of 2011-12.


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Microfinance Market in North GujaratDistrict Area

(in Sq. Km.)

Population

crores

Taluka Village Literacy

(in %)

Talukas / Towns Planned

Potential for microfinance

operations

Gujarat196,024 4.8 Cr 222 18 K 60.91

Ahmadabad 8,707 0.58 Cr 10 551 73.1 Bhadiad, Bhoyani, Dehgam,

Dholera, Dholka, Jetalpur,

Lothal

Gandhinagar 649 0.13 Cr 4 216 87.1 Adalaj, Dabhoda,Gandhinagar

Mehsana 9,027 0.18 Cr 7 622 65.1 Becharaji, Delmal, Kadi,

Kalol, Mahesana, Mahudi,

Modera, Patan, Shankheshwar,

Sidhpur, Taranga,

Sabarkantha 7,390 0.20 Cr 13 1,386 59.0 Himatnagar, Idar, Khed

Brahma, Modasa, Shamlaji,

Talod

Total 25,773 1,10,72,282 34 2,775

A conservative estimate suggests a potential borrower base of at least 10 lakhs with a potential loan appetiteof 2,000 crore in the four districts.


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Assets backed and Individual MF Schemes

Arman follows individual methodology for its Assets backed MF Schemes.

Assets backed and Individual MF schemes have been contributing to more than 90% of the revenue of thecompany till as late as FY 2009-10.

Going forward JLG based MF schemes will contribute to bulk of the revenue of the company and shall alsoresult in exponential growth rate.


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JLG based Micro Finance by Arman

Under JLG based scheme the group size is between 10-30 members. The group members have to share theresponsibility of repayment.

Arman has set up branches for disbursement, collection and monitoring of microfinance loans.

The JLG based MF scheme contributed just Rs 47 lakhs to the revenue and Rs 5 lakhs to the profitability ofthe company during FY 2009-10. The same is expected to contribute Rs 7 crore to the revenue and Rs 1.45crore to the Net profit of the company during FY 2010-11.


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Fund Mobilization

The company is looking at growing its JLGBased MF scheme in a big way.

In order to serve the needs of a large borrower base , the company has planned JLGdisbursements for FY 2010-11 at Rs 50 crore.

In order to achieve its ambitious targets, thecompany has already received a loan sanctionof more than Rs 40 crore.

Name of Lenders Loan Type Amt Sanctioned (inLakhs)

HDFC Bank (TL II) Term Loan 250.00

HDFC Bank (TL III) Term Loan 50.00HDFC Bank (IV) Term Loan 150.00

ICICI Bank (ii) Term Loan 500.00

AXIS Bank (ii) Term Loan 200.00

AXIS Bank (iii) Term Loan 300.00

SIDBI (ii) Term Loan 200.00

SIDBI (iii) Term Loan 100.00

Till now, Arman has been able to mobilizeloan funds at a weighted average interest rateof 12.4%.

In order to fund the lending activities of the

company further, the company recentlyapproved a Rights issue of 50 lakh shares atRs 15/- that will help mobilize funds to thetune of Rs 7.5 crore and also maintain acomfortable capital adequacy ratio

SIDBI (iv) Term Loan 200.00

United Bank of India Term Loan 50.00

FWWB India Term Loan 25.00

Total Term Loan 2475.00

IDBI CC Limit 800.00

State Bank of India CC Limit 500.00

State Bank of Patiala CC Limit 300.00

HDFC Bank Ltd CC Limit 50.00

Total Working CapitalFacility

1650.00


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Peers Comparison

i I h li d


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Peers Comparison In the listed space The company is amongst the only 3

listed companies in the space of Micro-finance and the most undervalued onvarious valuation parameters.

Arman Financial Services Ltd isavailable at a PE multiple of 16, whilethe other listed companies like CapitalTrust Ltd and SE Investments Ltd areavailable at PE multiples of 50 and 38respectively.

.its Outstanding Loan book size, whileSE Investments and Capital areavailable at a market capitalization of 4times their Outstanding Loan BookSize (Mar10)

Arman has a Repayment rate at 100%for it's Micro-finance division, whilethe Repayment rate for SE Investmentstands at 98%

P C i


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Peers Comparison..MFI FY09

Revenue(Crore)

InterestExpense

OPM NetProfit(crore)

NPM Cost ofBorrowing

Cost ofLending

ROA(FY09)

Memberbase

Loanamountoutstanding

Debt/Networth

SKS 554 35% 40% 80.2 14.4% 10% 24% 3.30% 53 lac

(Sep09)

3208 Cr

(Sep09)

7

SEIL 88.36(FY10)

36.30% 40% 26(FY10)

28% 10% 16% 5.60% 1.4 lac 195 Cr(FY 09)

2.3

CapitalTrust

3.68(FY10)

10% 17.04% 0.22(FY10)

6.01% 12% 22000 12.4 Cr(FY10)

ARMAN 5.53

(FY10)

35% 58.36% 0.80 14.07% 12% 6.25% 14000 27.98 Cr

(FY10)

2.27

Arman is basically a very small player in the Micro finance segment, however the company is gathering paceand is looking at growing its JLG based Micro-finance at over 70-80% CAGR over the next 2-3 years.

On comparing with a company like Capital Trust, one can very well notice that Arman is available at a huge

discount. Arman stands tall in all respects when compared to Capital Trust, however Arman is available atjust Rs 13 crore market cap, while Capital Trust at Rs 50 crore.

If we compare the loan book outstanding of various companies to that of Arman, one can easily understandthat Arman should trade at not less than Rs 40 crore market cap (I have assumed very conservativeestimates).


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Revenue Guidance By the Management


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P j ti A t b k d & I di id l MF


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Projections Assets backed & Individual MF

Particulars 2009-10 2010-11 2011-12 2012-13 2013-14

Audited Projected Projected Projected Projected

Total Income 506.02 731.53 1030.66 1324.34 1547.08

Administrative andother expenses

207.16 257.76 307.60 361.25 419.54

Interest Charges 177.52 318.03 480.71 609.87 711.71

Rs in Lakhs

Depreciation 7.18 7.96 7.96 7.96 7.96

Cost of Service 391.86 583.75 796.27 979.09 1139.21

Profit before Tax 114.16 147.77 234.39 345.25 407.87

Tax on Profit @ 33.99% 38.54 51.73 81.32 119.13 140.53

Net Profit 75.62 96.04 153.06 226.12 267.34


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Financial Analysis

I St t t L t 4


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Income Statement Last 4 years Arman has been a consistent

performer for the last 4 years,however the rate of growth has

been slow as compared to the

growth we expect out of thecompany in the subsequentyears.

Till as late as FY 2009-10, Assets backed and individual loanschemes accounted for 90% of

the revenue of the company andthus the growth has been muted.

Going forward more than 60%(the share will increase withevery passing year) of the Profitsof the company are expected to

accrue from JLG based MF.

We expect the company to growits earnings at a CAGR of 70-80% over the next 2-3 years.

I St t t Q t l


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Income Statement Quarterly

The impending growth ofArman can be gauged from thefact that the company could

increase its Interest income byalmost 75% during FY 2009-10.

During Mar10 quarter, thecompany saw a dip in net profitand an increase in interestpayment. The explanation for

the same is as below.

For the first 3 quarters of FY2009-10, the company had beendebiting Bank charges andProcessing fees intoAdministrative and other

expenses. However, based onthe recommendation of theirauditors, the company reclassedthese expenses for the wholeyear in the final quarter asInterest expense.


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The Management

Board of Directors


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Board of Directors

S.NO NAME DESIGNATION

1. SHRI CHINUBHAI R. SHAH CHAIRMAN2 SHRI AYENDRABHAI B. PATEL VICE CHAIRMAN & MANAGING

DIRECTOR

3. SHRI AMIT R. MANAKIWALA WHOLE TIME DIRECTOR

4. SHRI KAUSHIK D. SHAH DIRECTOR

5. SMT. RITABEN J. PATEL DIRECTOR

6. SHRI AAKASH J. PATEL DIRECTOR

7. SHRI NILESH H. TRIVEDI DIRECTOR

8. SHRI AALOK J. PATEL DIRECTOR

An Introduction of Promoters


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An Introduction of Promoters SHRI CHINUBHAI R. SHAH (Chairman) :-

More than 30 years corporate experience. Past president of Gujarat Chamber of Commerce.

Member, Board of Governors of Indian Institute of Management, Ahmedabad [1992-97]

President, All India Management Association, New Delhi [1991-92]

MR. JAYENDRA B. PATEL MANAGING DIRECTOR

Founder of the company with more than 20 years of Senior Managerial and board level experience.

He is the secretary of Gujarat Finance Companies Association.

MR. KAUSHIK SHAH DIRECTOR

. , . , . . , ,

Taxation, Corporate Laws and Audit.

MR. AMIT MANKIWALA DIRECTOR

B.COM, having an experience of almost two decades. Looks after Day-to-day administration, finance,

accounts, audit, recovery, etc. of the company.

MR. AALOK PATEL DIRECTOR

Commerce graduate and CPA from USA. In USA, he was working as Audit Manager with KPMG in USA.


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Shareholding Pattern


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Near lifetime high


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Near lifetime high

Huge volumes coupled

with increase in shareprice, strong bullish sign

The stock is in the uptrend phase & is looking strong on charts as it is making new (top) highs & bottoms. Asillustrated in the chart , the stock price of Arman Financial was dull & underperformed for a long period oftime .

The recent highs scaled by the company have been backed by larger volumes, thus validating the recentupward move.

We expect the rally to continue on account of undervaluation and the upcoming IPO of SKS Microfinance.


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Investment rationale

In estment Rationale


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Investment Rationale

The company is amongst the only 3 listed companies in the space of Micro-finance and the most undervaluedon various valuation parameters.

The company will see a complete re-rating once SKS Micro-finance, the largest MFI in India hits the Capital

Market in July 2010.

The company is available at 0.43 times its Outstanding Loan book size, while SE Investments and CapitalTrust are available at a market capitalization of 5 times their Outstanding Loan Book Size (Mar'09)

Arman has a Repayment rate at 100% for it's Micro-finance division, while the Repayment rate for SEInvestment stands at 98%

Arman Financial Services Ltd is available at a PE multiple of 16, while the other listed companies like CapitalTrust Ltd and SE Investments Ltd are available at PE multiples of 50 and 38 respectively.

The management has increased it's stake by approximately 1% in the last 1 year.


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Risks and Concerns

Risks Involved


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Risks InvolvedRisks:- The following are the probable risks involved with the investment in

this company.

Increase in Competition The Microfinance sector in India is witnessingincrease in competition almost on a daily basis. There are many local,national and international players joining the party. A sector witnessinghigh growth sees an influx of competition from all the corners.

Geographic Concentration Arman is active only in parts of Gujarat,

while most of its peers have presence in at least 15 states. The company.

Access to funds Arman, like any other MFI will face funding pressure tokeep up the growth rates. Cheap access to funds could be the majorroadblock for the company. The cost of funds will determine the profit

margins of the company.

Disclaimer


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Disclaimer

This document is not for public distribution and has beenfurnished to you solely for your information and mustnot be reproduced or redistributed to any other

person. Persons into whose possession this documentmay come are required to observe these restrictions.This material is for the personal information of theauthorized recipient only.

The recommendation made herein does not constitute anoffer to sell or solicitation to buy any of the securitiesmentioned. No representation can be made that

recommendation contained herein will be profitableor that the will not result in loss. Informationobtained is deemed to be reliable but do notguarantee its accuracy and completeness. Readersusing the information contained herein are solelyresponsible for their action.

HBJ Capital, or its representative will not be liable for the

recipients investment decision based on this report.HBJ Capital, officers, directors, employees or itsaffiliates may or may not hold positions in thecompanies /stocks mentioned herein.


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THANK YOU

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