Suryoday: Financially Secure, Deeply Undervalued Small Finance Bank

Amey Kulkarni of Candor Investing presented his investment thesis on Suryoday Small Finance Bank (India: SURYODAY) at Asian Investing Summit 2025.

Thesis summary:

Suryoday Small Finance Bank is a niche private-sector lender with a significant presence in microfinance and bottom-of-the-pyramid banking. Over the last few years, the bank has been steadily transitioning from an unsecured microfinance-heavy portfolio to a more balanced and secured asset mix, with secured loans making up 47% of the book as of December 2024. While the microfinance industry in India faced a significant downturn through 2024 due to over-lending and regulatory tightening, Suryoday entered the crisis with a key cushion: nearly 95% of its unsecured loans are covered under the CGFMU guarantee scheme, which caps the bank’s credit loss exposure to a manageable level. Even in a worst-case scenario of 15% credit losses, Suryoday’s net burden is estimated at just ₹210 crore — equivalent to its FY24 net profit.

The bank recently traded at ₹100 per share, implying a market capitalization of $123 million and a deeply discounted valuation of 0.55x book. With a capital adequacy ratio of 26.9% — well above the regulatory minimum — and a resilient funding base built on retail term deposits, Suryoday has the balance sheet strength to weather sector volatility. While gross NPAs spiked to 5.5% in Q3FY25 due to delayed recognition, net NPAs adjusted for expected guarantee recoveries stood at just 0.1%, suggesting the credit drag may be more optical than structural. The bank’s revenue has grown steadily from $90 million in FY21 to $224 million for the trailing nine months of FY25, with improving profitability in recent quarters.

Looking forward, Suryoday is positioned to benefit from both a cyclical rebound in the microfinance space and its own strategic pivot toward secured lending. By March 2027, secured loans are expected to make up 60% of the total book, enabling a more stable earnings profile. If the microfinance sector follows a classic boom-bust-survivor cycle, Suryoday is well-placed to emerge as a consolidator, with increased market share and profitability. On conservative estimates of ₹200 book value and 1.5x P/B, the stock could triple from current levels over the next two years.

Key risks include the possibility of higher-than-expected credit losses in the microfinance portfolio, procedural delays or disputes in CGFMU guarantee payouts, and any signs of deterioration in the secured loan book. However, with its fortified balance sheet, significant regulatory support, and clear path to asset quality normalization, Suryoday represents a classic mispriced recovery play in Indian financials, offering long-term investors a rare combination of downside protection and asymmetric upside.

About the instructor:

Amey Kulkarni operates a boutique investment advisory that partners with select individuals and family offices in their journey of wealth creation through investments in the Indian equity markets. Amey worked in the corporate sector for a decade with experience spanning across India, Europe and African markets. Amey has also worked closely with the top management of L&T (Chairman’s office) and the MD&CEO office at Jindal Steel & Power handling responsibilities of corporate strategy and business planning. Having gained unique insights into the internal workings of large diversified businesses from close quarters, Amey now applies the learnings to run an investment fund at Candor Investing. At Candor Investing, Amey invests in companies that don’t require external capital, have the ability to grow for a long time and are run by honest and hungry management. Being passionate about sharing the learnings and insights gained out of his investment experience, Amey occasionally takes up visiting faculty assignments at various Indian business schools. He is also a contributing author to the Moneylife Magazine which is renowned for pointing out corporate governance issues and championing investor awareness campaigns.