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IPO Analysis: Credit access Grameen ltd

Rohan Takalkar
/ Categories: Mindshare, IPO Analysis, Markets
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IPO Rating - 45 (Avoid)*

About the issue

 The IPO of Creditaccess Gramin Limited opens for subscription from August 8 to August 10, 2018. This IPO consists of fresh equity issue worth Rs. 630 crore (1,49,28,910 shares) and offer for sale (OFS) of 1,18,76,485 shares by existing stakeholders. Post issue, promoter and promoter group’s holding will reduce to 80.3% and non-promoter shareholding will increase to 19.7% from 1.1%. The face value is Rs 10 per equity share. The minimum lot size is of 35 shares and the issue price band is Rs. 418-422 per equity share. Post allotment, the company will get listed on both BSE and NSE.

About the company

Creditaccess Grameen is the country’s third-largest NBFC in MFI segment. The company is headquartered in Bangalore and primarily focuses on lending to women customers in rural India. The company focuses predominantly on customers in rural areas in India, who largely lack access to the formal banking sector and present a latent opportunity for offering micro-loans. The company's products are built on a deep understanding of the requirements of customers in rural areas in terms of ticket size, end-use and repayment option. The company's manner of delivery differentiates it from competitors and generates customer loyalty. The company provides financial assistance to women whose annual income is below Rs. 1.6 lakh p.a in urban areas and Rs.1 lakh p.a in the rural area. Creditaccess' network is spread in eight states of Karnataka, Maharashtra, Tamil Nadu, Chhattisgarh, Madhya Pradesh, Odisha, Kerala, Goa with a presence in 132 districts. The operations are well-diversified with 516 branches and 4,154 loan officers.

The company provides loans primarily under the joint liability group (JLG) model. The primary focus is to provide income generation loans, which comprise 87.02 per cent of its total JLG loan portfolio, as of March 31, 2018. They also provide other categories of loans such as family welfare loans, home improvement loans and emergency loans to our existing customers.


The company has shown a steady increase in advances over the past few years. The total AUM for the company has grown at 40 per cent CAGR over FY16-18 to Rs. 4,974 crore in FY18 vs Rs. 2,538 crore in FY16. The disbursements have also been on the higher side with 35 per cent CAGR of over FY16-18 to Rs. 6,081 crore in FY18. On such strong AUM and disbursements growth, the net interest income for the year has grown at a pace of 43 per cent CAGR over FY16-18. Further, the GNPAs have also shown stability at 1.9 per cent for FY18. Lastly, the net profit has grown at a pace of 55.3 per cent yoy to Rs. 124 crore in FY18 vs Rs. 80.2 crore in FY17. The RoNW remains high at 9 per cent for FY18.

Poor diversification

Being rural-centric, the company has a network in 8 states of the country with presence in 132 districts through 516 branches. However, the company’s major business comes from Karnataka and Maharashtra. Out of the total AUM, almost 86 per cent of the AUM aggregates from these two states. This gives low visibility of growth in other states as the company does not envisage to expand its network in the near-term. Also, the company is prone to the risks associated in these states which might impact its growth, going forward.

Too much rural-centric

The company has a strong rural-centric approach which may play a spoilsport, going forward. Its share in the business from the urban region is very less as compared to other MFI lenders who have a judicious mix of business and well-diversified into urban as well as rural areas. Going forward, the rural-centric business may also become a key risk for the company. Rural income is largely dependent upon agriculture which does not guarantee strong yields over the years. Also, it faces fierce competition from its peers which have a significant edge over it.

Higher interest costs

The company has one of the higher interest rates in the industry at 22 per cent p.a. While its closest peers like Bharat Financial Inclusion and Satin Credit Care have much lower rates to offer. In the rising interest rate scenario NBFC’s face brunt of rising credit costs as major banks being the major source of funding for them. Its major peers like Bharat Financial, Muthoot Finance have lower borrowing costs at 10 per cent levels while Credit access Grameen has a borrowing costs of 13.2 per cent.

Higher operating expenses

The company caters mainly in two states which pose risks to the company’s growth. Also, it might incur higher operating expenses on plans of expansions. A large part of its cost efficiency can be attributed to its concentration in two states, low spend on technology and low needs for high-cost staff. Diversification and technological capabilities will also involve big costs in the future.


The company boasts superior metrics being the third largest NBFC in MFI lender in terms of the gross loan book.The company is trading at P/BV of 3.8x on book value of Rs.111 per share at upper price  band of Rs.422. However, it has significant drawbacks in terms of its rural centralised business and inability to provide beyond JLG loans. Its low investment in technological advancement will also impede higher operating expenses, going forward. We recommend avoid on the offer as company’s faces keys risk on its future growth prospects. MFI segments remains risky which should be supported by other lending segments. 

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment

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