IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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CreditAccess Grameen Ltd / Equity Capital Markets

CreditAccess Grameen (CAG) is a financial institution focused on microfinance services in the underbanked and underpenetrated markets in India. According to press reports, CAG will start pre-marketing its IPO by the end of February or early March, seeking to raise up to Rs9 billion ($140 million).Investors seeking new exposure to the Indian microfinance sector are spoilt for choice through the upcoming IPOs of CAG and <a href="https://www.smartkarma.com/entities/26705" target="_blank" data-smartkarma-citation="entities:26705:1">Bandhan Bank Ltd (1366254D IN)</a>. CAG has top-quartile growth, profitability, and asset quality metrics in comparison to its peer group of microloan-focused small finance banks. Our overall view on a fundamental basis is that Bandhan is a better IPO play on the Indian microfinance sector than CAG due to:<ol><li>CAG’s net interest income growth of 55% and loan advances growth of 21% in FY17 is the second-highest in its peer group, behind Bandhan. CAG’s strong profitability metrics are due to a combination of a high net interest margin (NIM) and a low cost-to-income ratio. CAG’s NIM at 11.6% is the highest among its peers in 1H18.</li><li>CAG’s asset quality is good in the context of its state exposure. Demonetisation had an impact due to 100% loan book exposure to microloans and 87% gross loan book exposure to severely affected states such as Karnataka and Maharashtra. CAG’s GNPA ratio increased from 0.1% in FY16 to 7.7% in FY17. The GNPA ratio decreased to 5.4% in 1H18 which, except for Bandhan’s low GNPA, is in line with its peers.</li><li>Once the merger of <a href="https://www.smartkarma.com/entities/251" target="_blank" data-smartkarma-citation="entities:251:1">Bharat Financial Inclusion Limited (BHAFIN IN)</a> and IndusInd Bank is completed, CAG will be the only large NBFC-MFI. We believe CAG could start facing some challenges from the recent small finance bank-converts such as Janalakshmi and <a href="https://www.smartkarma.com/entities/22697" target="_blank" data-smartkarma-citation="entities:22697:1">Ujjivan Financial Services (UJJIVAN IN)</a>. The crux of the problem is that CAG would continue to operate under the NBFC-MFI restrictions, while these would largely not apply to the small finance banks. CAG can offset some of the increased competition from small finance banks by taking share from smaller NBFC-MFIs.</li></ol>We will provide a view of valuation once the IPO price range is announced.

CreditAccess Grameen (CAG) is a financial institution focused on microfinance services in the underbanked and underpenetrated markets in India. According to press reports, CAG will start pre-marketing its IPO by the end of February or early March, seeking to raise up to Rs9 billion ($140 million).Investors seeking new exposure to the Indian microfinance sector are spoilt for choice through the upcoming IPOs of CAG and Bandhan Bank Ltd (1366254D IN). CAG has top-quartile growth, profitability, and asset quality metrics in comparison to its peer group of microloan-focused small finance banks. Our overall view on a fundamental basis is that Bandhan is a better IPO play on the Indian microfinance sector than CAG due to:CAG’s net interest income growth of 55% and loan advances growth of 21% in FY17 is the second-highest in its peer group, behind Bandhan. CAG’s strong profitability metrics are due to a combination of a high net interest margin (NIM) and a low cost-to-income ratio. CAG’s NIM at 11.6% is the highest among its peers in 1H18.CAG’s asset quality is good in the context of its state exposure. Demonetisation had an impact due to 100% loan book exposure to microloans and 87% gross loan book exposure to severely affected states such as Karnataka and Maharashtra. CAG’s GNPA ratio increased from 0.1% in FY16 to 7.7% in FY17. The GNPA ratio decreased to 5.4% in 1H18 which, except for Bandhan’s low GNPA, is in line with its peers.Once the merger of Bharat Financial Inclusion Limited (BHAFIN IN) and IndusInd Bank is completed, CAG will be the only large NBFC-MFI. We believe CAG could start facing some challenges from the recent small finance bank-converts such as Janalakshmi and Ujjivan Financial Services (UJJIVAN IN). The crux of the problem is that CAG would continue to operate under the NBFC-MFI restrictions, while these would largely not apply to the small finance banks. CAG can offset some of the increased competition from small finance banks by taking share from smaller NBFC-MFIs.We will provide a view of valuation once the IPO price range is announced.

CreditAccess Grameen IPO Preview: Good but Not the Best

India

CreditAccess Grameen Limited provides consumer finance services. The Company offers income generation, home improvement, emergency, and family welfare loans, as well as retail finance, insurance, and healthcare programs. CreditAccess Grameen serves clients in India.

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CreditAccess Grameen Ltd (CREDAG IN)

CreditAccess Grameen IPO Preview: Good but Not the Best

CreditAccess Grameen (CAG) is a financial institution focused on microfinance services in the underbanked and underpenetrated markets in India....

Arun George

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