Arman Financial Services Ltd

Arman 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-finance
activity from 2008 in the Mehsana, Sabarkanta, and Ahmadabad (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 rate of growth.
HBJ Capital’s “Business Insight” stock for the month of June 2010
HBJ Capital, India
Web: www.hbjcapital.com
E-Mail: info@hbjcapital.com
Call: +91 98867 36791
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 the

subscribers on 5th Jun’10, we have reco above buying price/strategies.
 HBJ Cap is growing
faster than ever.
HBJ Capital can be your
50x in 3years
investment.
Ask how?

Aim to become #1 -
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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#)
 Microfinance in India – (Page – 18#)
 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#)
From the desk of CEO, HBJ Capital
Microfinance as a sector has
been growing at a very
impressive growth rate. The
sector is completely supply
driven and the demand is
far outstripping the supply.
Considering that the sector
as such is growing at a very
high CAGR of 50%, it would
take 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 have
no access to credit from traditional banks and financial
institutions. Microfinance is seen by some as a viable solution to
reduce poverty, enabling those at the Bottom of the Pyramid to
reshape their destiny. The value of the loans generally ranges from
1$ to a maximum of 200$. The money is lent from local
organizations, so called Microfinance Institutions (MFI), when
certain conditions are met.
Consider the story of Puja Patel, a single mother who lives with
her four children in a village in India. With a $50 loan, she bought
a sewing machine. She made clothes, sold them for a profit, and
repaid the loan with interest. She was also able to save some
money 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 it
takes to break the cycle of poverty. The growing microfinance
movement is planting seeds of health and financial independence
around the world, and both borrowers and investors are reaping
the benefits.
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 to
serve 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 equity
money 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 the
country.

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

MPS is proud to bring you the “Business Insight” pick of the month – Arman
Financial 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 : Info@hbjcapital.com , www.hbjcapital.com
Overview –Arman Financial Services Ltd
Arman Financial Services Ltd – Overview
Some key stats..
 CMP = Rs 32.70 (June25th 2010) – The stock was
suggested on 5th Jun’10 when it was trading at
Rs 23.80. Since then the stock has appreciated
by almost 40%.
 52 week’s high/low = Rs 34.70/6.51 – The stock
recently made a new 52 week high. As it is in
the strong bullish phase it can continue to make
new highs.
 Peak share price = Rs 34.70 (17th June ‘10) –
Always when the stock reaches its life time high
it goes into a strong bullish phase in the
absence 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 in
the Microfinance sector.
 EPS = Rs 1.98 – Company has recorded an
annualized EPS of Rs 1.98 .
 PE =16.41 Going forward, the revenue is expected to
increase multi-fold as per the revenue guidance shared by
the company.
 Book Value = Rs 17.98 - The current stock price at Rs
32-33 is trading at about its two times its book value
price, which is again very low considering the industry
standards.
 Shareholdings : No Of shares [% Share Holding ]
 Total Foreign: 4.3lakhs [10.7%]
 Total Institutions: 0 [0%]
 Total Non Promoter Corporate Holding 1.1lacs
[2.6%]
 Total Promoters 14.8 [36.4%]
 Total Outstanding Shares 40.8 lakhs[100 %]
 Debt/Equity = 2.27 [Mar’10]
 ROCE = 14.8% [Mar’09]
 RONW = 9.41% [Mar’09]
 Current Ratio = 12.02 [Mar’09]
 Delivered Volume per day = Approx 81%
 BSE Code 531179
Microfinance Industry: Overview
Micro finance institution

 In the late 1990s, the micro-finance business was boosted by the innovative initiatives taken by non-
government micro-finance institutions (MFIs) and banks. They offered micro-credit i.e. credit provided 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 products
remained untailored to the requirements of the poor. They required better access to services and products
rather than subsidized credit.

 It was, therefore, recommended through the conclusions drawn in a study by NABARD that alternative
policies, 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 the
advances given to the poor remained low.
Contd..

 To improve accessibility of the existing banking network to the poor, the

Self Help Group (SHG) - Bank Linkage Model was launched in 1992 to
facilitate empowerment of the poor.

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

sector offer micro-finance services in India. Such institutions are broadly
categorized into: formal institutions and informal institutions

 The former category comprises of Apex Development Financial

Institutions, Commercial Banks, Regional Rural Banks, and Cooperative
Banks

 The informal institutions that undertake micro-finance services as their main

activity being referred to as Micro - Finance Institutions (MFIs). Whilst both
private and public ownership can be found in the case of formal financial
institutions offering micro-finance services, the MFIs are mainly found in the
private sector.
Financing the unprivileged..

 Microfinance is a simple but powerful tool that enables the poor to pull
themselves out of poverty. Most commonly, it involves making small
loans to the working poor in developing countries.

 These loans are usually less than $200 and are made by local
organizations called microfinance institutions. The loans are used by the
working poor to establish or expand small businesses that generate
additional income for the family. This extra income allows a poor family
to buy food, access healthcare, educate their children, put aside savings
and lay the foundation for a better future.

 Microfinance has emerged as an effective poverty alleviation tool

because it is based on the fundamental principle that human beings are
motivated to do whatever it takes to make themselves as well off as
possible.
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 to
largely untested customers.

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

 The history of rural finance is typified by the image of a nationalized

banking system which has failed to deliver credit and, if it has, not been able
to recover it. Microfinance, by contrast, is increasingly being seen as an
innovation in lending and the panacea for rural India's indebtedness to
money 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 poor
households. To do this, they are choosing to partner with MFIs, most of which have
current recovery rates of over 96%. Foreign banks with little or no presence outside
India'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 link
insurance with their loan schemes.
Microfinance
.. Surviving the Economic Crisis..
 While the middle and upper class seem to bear the brunt of
the 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 for
us all.

Microfinance still Hums, Despite Global Financial Crisis

 The microfinance industry, is somewhat resistant to some of

the volatility now plaguing financial markets. That’s because
those who borrow in small amounts from micro lenders often
work on projects unaffected by large-scale global banking
travails.

 The concept of microfinance is based on a primary principle

holding 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 of

borrowers, why microcredit has the highest repayment rate if
compared to all other form of loans issued by traditional
banks.
MFI s – Business model
Now Let us See how the Grameen Bank developed
lending principles?

“Whatever banks did, I did the opposite. If banks lent to the rich, I lent to
the 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 were
collateral-free. If banks required a lot of paperwork, my loans were
illiterate-friendly. If you had to go to the bank to get a loan, I went to the
village. That was my strategy.”

 The surprising thing was that such principles worked. The rules
of mainstream banking seemed to have more to do with
preconceived notions of what a good borrower would be than
with the reality.

 In fact, the very poor, though unfamiliar with formal banking

practices, were often savvy money managers. They were quite
familiar with the concept of savings, usually keeping small
amounts of livestock or jewelry to sell in case of emergencies.
And by necessity, they were often resourceful, experienced
entrepreneurs with livelihoods that depended on whatever tiny
enterprises they could make work where they lived.
Contd..

 Lending Model - In terms of the lending model,

MFIs may be classified as lenders to groups or as
lenders to individuals. In India, MFIs usually
adopt the group-based lending models, which are
of two types - the self - help group (SHG) model
and the joint - liability group (JLG) model.

 In the SHG model, the MFI lends to a group of say

5 to 20 women. Under the JLG model, loans are
extended to and recovered from, each member of
the group. The most popular JLG model is the
Grameen Bank model. However, most of the
large MFIs in India following a hybrid of the
group models
Microfinance in India
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 levels
reached in Andhra Pradesh, Karnataka and Tamil Nadu.

 Some key facts at a glance:

 Microfinance in India, through the channel of SHG-Bank Linkage

Programs (SBLPs) or microfinance institutions, served over 76
million in 2009 compared to 59 million a year before.

 MFI’s recorded about 8.5 million clients during the year 2008-09, a
growth of 60% over the previous year.

 More than 50 percent of low income households are covered by

some form of microfinance product

 The total outstanding microfinance loans posted a growth rate of

30% or 359.39 billion over the last year’s level of Rs 229.54 billion.

 The SHG loan outstanding has increased by Rs. 71.5 billion with
an addition of 6.9 million clients.
Arman Financial Services Ltd
Basic Details..

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

 The company currently is engaged into the business of offering microfinance both unsecured (personal
loans), as well as, secured lending for auto rickshaws, two‐wheelers, old two and four wheelers and personal
loans 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.
Basic Details..

 The company is now determined to expand it's Micro-finance portfolio, which will be its core product and
the 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 Company
have extensive knowledge and understanding of the region.

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

 Secondly and more importantly, though Gujarat is witnessing increasing volume of economic activities, low income
families still find it difficult to raise finance from banks. Local moneylenders wreak havoc in the area through usurious
interest 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 and
knowledge of the region.
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 with
all it’s clientele based in Ahmedabad. The company has a database of
20,000 clients.

• The company has been rated 3 different times by noted rating

agency called M-Cril and the company could secure Alpha Minus
twice which is an investment grade, while the last time in March
2009 the company received Alpha for its financial performance.

• CRISIL recently assigned "BB/Stable" rating to the bank facilities

of Arman Financial Services Ltd
Arman Coverage..
• At Present Arman is working in the municipal
CURRENT
limits of Ahmedabad and Gandhinagar. It has also
COVERAGE started to work in the rural Area of Ahmedabad
including Kalol and in North Gujarat - Mahesana.

 Arman has also spread it’s activities of Micro

Finance in Baroda and Panchmahal Districts.

 Arman at the end of May 2010 has in all 11

Branches and adding one or two new area every
month. Arman’s JLG based Microfinance model is
well accepted by it’s members.

 Arman has opened 11 branches in Gujarat in the

last 18 months.

 The company proposes to open additional 28

branches in the Financial Year of 2010-11 and
further proposes to open 45 branches in the
Financial year of 2011-12.
Microfinance Market in North Gujarat
District Area Population Taluka Village Literacy Talukas / Towns Planned
(in Sq. Km.) crores (in %) Potential for microfinance
operations
196,024 4.8 Cr 222 18 K 60.91
Gujarat

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 appetite
of 2,000 crore in the four districts.
Assets backed and Individual MF Schemes

• Arman follows individual methodology for it’s Assets backed MF Schemes.

• Assets backed and Individual MF schemes have been contributing to more than 90% of the revenue of the
company 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 also
result in exponential growth rate.
JLG based Micro Finance by Arman

• Under JLG based scheme the group size is between 10-30 members. The group members have to share the
responsibility 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 of
the company during FY 2009-10. The same is expected to contribute Rs 7 crore to the revenue and Rs 1.45
crore to the Net profit of the company during FY 2010-11.
Fund Mobilization
Name of Lenders Loan Type Amt Sanctioned (in
Lakhs) • The company is looking at growing its JLG
HDFC Bank (TL II) Term Loan 250.00 Based MF scheme in a big way.
HDFC Bank (TL III) Term Loan 50.00
HDFC Bank (IV) Term Loan 150.00 • In order to serve the needs of a large borrower
base , the company has planned JLG
disbursements for FY 2010-11 at Rs 50 crore.
ICICI Bank (ii) Term Loan 500.00
AXIS Bank (ii) Term Loan 200.00
• In order to achieve it’s ambitious targets, the
AXIS Bank (iii) Term Loan 300.00
company has already received a loan sanction
SIDBI (ii) Term Loan 200.00 of more than Rs 40 crore.
SIDBI (iii) Term Loan 100.00
SIDBI (iv) Term Loan 200.00 • Till now, Arman has been able to mobilize
United Bank of India Term Loan 50.00 loan funds at a weighted average interest rate
of 12.4%.
FWWB India Term Loan 25.00
Total Term Loan 2475.00
• In order to fund the lending activities of the
IDBI CC Limit 800.00 company further, the company recently
State Bank of India CC Limit 500.00 approved a Rights issue of 50 lakh shares at
State Bank of Patiala CC Limit 300.00
Rs 15/- that will help mobilize funds to the
tune of Rs 7.5 crore and also maintain a
HDFC Bank Ltd CC Limit 50.00 comfortable capital adequacy ratio
Total Working Capital 1650.00
Facility
Peers Comparison
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 on
various valuation parameters.

 Arman Financial Services Ltd is

available at a PE multiple of 16, while
the other listed companies like Capital
Trust Ltd and SE Investments Ltd are
available at PE multiples of 50 and 38
respectively.

 The company is available at 0.43 times

its Outstanding Loan book size, while
SE Investments and Capital are
available at a market capitalization of 4
times their Outstanding Loan Book
Size (Mar’10)

 Arman has a Repayment rate at 100%

for it's Micro-finance division, while
the Repayment rate for SE Investment
stands at 98%
Peers Comparison..
MFI FY09 Interest OPM Net NPM Cost of Cost of ROA Member Loan Debt/Net
Revenu Expense Profit Borrowin Lendin (FY’09) base amount worth
e (crore) g g outstanding
(Crore)

SKS 554 35% 40% 80.2 14.4% 10% 24% 3.30% 53 lac 3208 Cr 7
(Sep’09) (Sep’09)

SEIL 88.36 36.30% 40% 26 28% 10% 16% 5.60% 1.4 lac 195 Cr 2.3
(FY10) (FY10) (FY 09)

Capital 3.68 10% 17.04% 0.22 6.01% 12% 22000 12.4 Cr

Trust (FY10) (FY10) (FY10)

ARMAN 5.53 35% 58.36% 0.80 14.07% 12% 6.25% 14000 27.98 Cr 2.27
(FY10) (FY10)

 Arman is basically a very small player in the Micro finance segment, however the company is gathering pace
and is looking at growing it’s 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 at
just 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 understand
that Arman should trade at not less than Rs 40 crore market cap (I have assumed very conservative
estimates).
Revenue Guidance – By the Management
Projections – JLG Based Micro Finance
Rs in Lakhs
Particulars 2009-10 2010-11 2011-12 2012-13 2013-14

Audited Projected Projected Projected Projected

Total Income 47.59 695.25 1812.59 2665.36 3446.47

Administrative and 23.57 219.54 220.80 220.80 220.80

other expenses
Interest Charges 16.18 182.51 425.57 577.70 694.52

Depreciation 0,00 3.26 8.49 10.93 13.83

W/O Bad debts & NPA 0.00 69.00 114.32 154.78 188.26

Cost of Service 39.75 474.30 769.18 964.21 1117.41

Profit before Tax 7.84 220.95 1043.41 1701.15 2329.06

Tax on Profit @ 33.99% 2.66 75.10 354.65 578.22 791.65

Net Profit 5.18 145.85 688.75 1122.93 1537.41

Projections – Assets backed & Individual MF
Rs in Lakhs
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 and 207.16 257.76 307.60 361.25 419.54

other expenses

Interest Charges 177.52 318.03 480.71 609.87 711.71

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

Projections – JLG & Asset Based and Individual
Rs in Lakhs
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Audited Audited Projected Projected Projected Projected

Total Income 439.98 553.61 1426.78 2843.25 3989.70 4993.5

Administrative and 173.55 230.73 546.29 642.72 736.83 828.6

other expenses

Interest Charges 155.30 193.70 500.54 906.28 1187.58 1406.2

Depreciation 6.15 7.18 11.22 16.45 18.89 21.8

Cost of Service 335.00 431.61 1058.05 1565.45 1943.29 2256.6

Profit before Tax 104.98 122.00 368.72 1277.80 2046.41 2736.9

Tax on Profit 35.99 41.20 126.84 435.98 697.35 932.1

Net Profit 68.99 80.79 241.89 841.82 1349.05 1804.7

Financial Analysis
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 the
company in the subsequent
years.

 Till as late as FY 2009-10, Assets

backed and individual loan
schemes accounted for 90% of
the revenue of the company and
thus the growth has been muted.

 Going forward more than 60%

(the share will increase with
every passing year) of the Profits
of the company are expected to
accrue from JLG based MF.

 We expect the company to grow

it’s earnings at a CAGR of 70-
80% over the next 2-3 years.
Income Statement – Quarterly
 The impending growth of
Arman can be gauged from the
fact that the company could
increase it’s Interest income by
almost 75% during FY 2009-10.

 During Mar’10 quarter, the

company saw a dip in net profit
and an increase in interest
payment. The explanation for
the same is as below.

 For the first 3 quarters of FY

2009-10, the company had been
debiting Bank charges and
Processing fees into
Administrative and other
expenses. However, based on
the recommendation of their
auditors, the company reclassed
these expenses for the whole
year in the final quarter as
“Interest expense”.
Financial Highlights
For the Year Mar’06 Mar’07 Mar’08 Mar’09 Mar’10

Gross Portfolio Outstanding 923.33 1786.07 1956.60 1807.92 2798.76

(Rs Lakhs)

Number of Borrowers 3,328 3,770 4,232 6,759 14,199

Total Branches 1 3 3 4 11 (May’10)

External Borrowings 727.35 866.78 1148.88 977.59 1992.79

(Rs Lakhs)

Net own Fund (Rs Lakhs) 546.70 597.09 664.10 733.09 813.88

Repayment Rate 98.9% 97.7% 97.1% 97.2% 97.2%

Debt Equity Ratio 1.33 1.45 1.73 1.34 2.27

Capital Adequacy Ratio 58.8% 39.6% 35.5% 46.96% 36.52%

The Management
Board of Directors

S.NO NAME DESIGNATION

1. SHRI CHINUBHAI R. SHAH CHAIRMAN
2 SHRI JAYENDRABHAI 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
 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

 B. COM, LL.B, F.C.A, is a practicing Chartered Accountant having experience in the field of Accounts,
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.
Shareholding Pattern
Shareholding pattern..

 At the end of Mar’ 10 the Promoter holding stands at 36.40%, which is reasonable and the increase in stake
further reflects the confidence of the management in the prospects of the company.

 The Promoter’s are further contemplating right issue in the ratio of 6 shares for every 5 shares held. The right
issue is priced at @ Rs15/-

 There are no major institutions holding the stock. Therefore an early entry into the stock can give humongous
returns with FI’s/FII’s coming in later.
Buying Strategy
Near lifetime high…

Huge volumes coupled

with increase in share
price, strong bullish sign

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

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

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

 The company is amongst the only 3 listed companies in the space of Micro-finance and the most undervalued
on 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 Capital
Trust 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 SE
Investment stands at 98%

 Arman Financial Services Ltd is available at a PE multiple of 16, while the other listed companies like Capital
Trust 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.
Risks and Concerns
Risks Involved
Risks:- The following are the probable risks involved with the investment in
this company.

 Increase in Competition – The Microfinance sector in India is witnessing

increase in competition almost on a daily basis. There are many local,
national and international players joining the party. A sector witnessing
high 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
should start diversifying itself geographically.

 Access to funds – Arman, like any other MFI will face funding pressure to
keep up the growth rates. Cheap access to funds could be the major
roadblock for the company. The cost of funds will determine the profit
margins of the company.
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