CreditAccess Grameen IPO Review: Some Bright Spots but priced high

CreditAccess Grameen IPO

The CreditAccess Grameen IPO  comprises of Fresh Issue of Rs. 630 crores and an offer for sale of up to 11,876,485 equity shares of the company. CreditAccess Grameen is one of the leading micro-finance institutions tn the country, headquartered in Bangalore  focuses on providing micro-loans to women predominantly in rural areas. CreditAccess Asia N.V., the promoters of the company is a multinational company specializing in MSE financing.

Issue Period Thu Wed 08 – Fri, Aug 10, 2018
Face Value Rs. 10/- Per Share
Issue Details 2,68,05,394 Equity Shares (Fresh issue+OFS)
Issue Size (Rs. Cr) Rs.  1131.19 Cr  (Fresh Issue 630 cr)
Price Band Rs.  418 – 422
Bid Lot 35  Equity Shares and multiple thereof
Issue Structure :
QIB 50% of the Net offer
NIB 15% of the Net offer 
Retail 35% of the Net offer-93,81,888 Shares -Rs. 396 Cr)
Application retail for 1x  2,68,054
BRLMs ICICI Securities, Credit Suisse Securities, IIFL Holdings, Kotak Mahindra Capital
Registrar Karvy Computershare Pvt Ltd
About CreditAccess Grameen Limited :
  • Incorporated on 1991, CreditAccess Grameen Limited  is the leading Indian micro-finance institution headquartered in Bangalore wirg focus on providing micro-loans to women customers predominantly in Rural Areas in India who largely lack access to the formal banking sector.
  • The company is promoted by CreditAccess Asia N.V. (“CAA”), a multinational company specializing in MSE financing.
  • As per CRISIL, CreditAccess Grameen is the 3rd largest NBFC-MFI in India in
    terms of gross loan portfolio  for the year ended March 31, 2017.
  • CreditAccess Grameen follows a strategy of district based expansion across
    regions and, as of March 31, 2018, they cover 132 districts in the 8 states
    of Karnataka, Maharashtra, Tamil Nadu, Chhattisgarh, Madhya Pradesh,
    Odisha, Kerala and Goa and 1 union territory (Puducherry) in India through
    516 branches and 4,544 loan officers.
  • The company focuses on customers in rural areas in India,
  • As of March 31, 2018, it  served customers in over 200 cities through its pan-India network of 209 branches (and a representative office in Dubai) and service centers of its registrar and transfer agent (“RTA”) supported by a strong and diversified network of over 65,000 empanelled distribution partners across India, consisting of independent financial advisors (“IFAs”), national distributors and banks. 
CreditAccess Grameen : Financials:

Particulars 2018 2017 2016 2015
Gross AUM 4974.66 3075.44 2538.78 1447.07
% Growth 62% 21% 75% 79%
Disbursements 6,081.72 3,402.63 3,348.85 1,893.91
% Growth 79% 2% 77% 84%
Revenue from Operations 865.55 701.75 456.95 268.16
Revenue Growth (%) 23.34% 53.57% 70.40% 88.39%
Profit Before Tax 192.86 124.3 129.54 74.92
Profit after Tax 124.64 80.3 83.24 48.73
Net Profit Margin 14.40% 11.44% 18.22% 18.17%
Share Capital 128.43 85.68 72.95 72.95
Reserves 1,299.46 605.12 386.92 303.44
Net worth 1,427.08 690.41 459.24 375.5
EPS (Rs.) 12.26 10.01 11.41 9.15
RoNW (%) 8.73% 11.63% 18.13% 12.98%
Net Asset Value (Rs.) 111.12 80.58 62.95 51.47
Net Interest Margin (%) 12.70% 13.72% 12.48% 12.33%
Face Value 10
Post Issue Equity 143.36
Post Issue NAV 143.41
EPS (FY18) 8.69
IPO Price 422
PE  48.54
Price to Book Value 2.94
CAGR Sales 3 Yrs 47.79%
CAGR NP 3 Yrs 36.76%
Market Cap 6049.79
Market cap / Sales 7683.66
CreditAccess Grameen IPO: Pros
  • The company’s promoter is  CreditAccess Asia N.V. (“CAA”),  is a multinational company specializing in micro and smal lenterprise financing and has micro-lending experience through its subsidiaries in 4 countries in Asia.
  • The focus customer segment of its micro-loan is women with an annual household income of ₹160,000 or less in Urban Areas and ₹100,000 or less in Rural Areas Directions.
  • CreditAccess Grameen is the customer-centric organization and had a high  Active Customer Retention Rate of 90% (annualized) for the 6 months ended September 30, 2017.
  • Its Gross AUM was ₹49,746.61 million as of March 31, 2018. Gross AUM grew at a CAGR of 57.45% from ₹8,095.22 million as of March 31, 2014 to ₹49,746.61 million as of March 31, 2018. Disbursements across its financing products for the financial years ended March 31, 2016, 2017 and 2018 were ₹33,488.46 million, ₹34,026.29 million and ₹60,817.22 million.
  • The company had the lowest operating expense ratio amongst the top-eight NBFC-MFIs and SFBs for FY2017. The ratio of operating expense to annual average gross AUM ratio has consistently declined from 6.76% for FY2014 to 5.69% for FY2017 and further down to 4.96% for FY2018.
  • CreditAccess Grameen Gross NPA Ratio was 0.08% as of March 31, 2017, which increased to 1.97% as of March 31, 2018. The provision for non-performing assets also increased significantly from ₹25.82 million as of March 31, 2017 to ₹980.92 million as of March 31, 2018. 
  • The company has made deep inroads into rural areas and follows district based expansion model.
CreditAccess Grameen IPO: Risks
  • CreditAccess Grameen operations are concentrated in Karnataka and Maharashtra and any adverse developments in these states could have an adverse effect on itr business.
  • Risks associated with unsecured Microfinance Loans
  • Company’s business is particularly vulnerable to interest rate risk, and volatility in interest rate
  • The Promoter has invested in Sahayata Microfinance Private Limited, which has been involved in various financial irregularities and discrepancies in the past. 
CreditAccess Grameen IPO: Comparison with Peers: 

The most appropriate criteria  is to compare P/BC ratio. CreditAccess’s is demanding a Price/ BV of 2.9x  which is rather high as peers  Satin Credit care,  ruling at P/BV multiple of  1.7x, Ujjivan is ruling at P/BV 2.4x and  Equitas is ruling at P/BV of 2.1x

CreditAccess Grameen IPO : Assessment

  • Micro finance sector has huge potential and better margins but since these loans are unsecured in nature, past events in the country like farm loan waiver and Demonetization have demonstrated that they are susceptible to credit risks which may result in increased levels of NPAs.
  • The company had the lowest operating expense ratio amongst the top-eight NBFC-MFIs and Small Finance Banks for FY2017.
  • CreditAccess Grameen has good penetration in rural areas. 
  • Post Demonetization,  CreditAccess Grameen has witnessed  rise in Gross NPAs  but has been managed better than other MFIs. CreditAccess Grameen maintains 100% provision overage and has zero Net NPAs but uncertainty on account of frequent loan waivers presents risk along with risk arising from higher geographical concentration in two states. 
  • Valuations seems to on upper side considering the recent risks  to which MFIs are subject to. 
  • EPS on post-issue equity works out to Rs 8.69 for FY2018 and the  P/E works out  48.5 x on the upper price band which is expensive. More meaningful is a comparison on P/BV ratio. The book value after the issue for CreditAccess Grameen shall be Rs 143.41 and accordingly P/BV works out to be 2.94 x which again is is slightly on the higher side. 
  • While Management credentials appear good and company has demonstrated good operational efficiency, the sector has many risks and uncertainties coupled with high premium being asked by the company. I intend to skip  Credit Access Grameen IPO. May only change my view if here is substantial response to the issue from the QIBs. Will post the final decision here on Day 3 of the issue. 
  • On Day 3 CreditAccess Grameen has attracted some Institutional interest. However Iam not likely to apply for this IPO even though management quality seems good. 
  • It cannot be denied that company has some bright spots and can prove to a good long term bet.
Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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