A woman holds the loan she has received, a stack of rupee bills, during a meeting organised by a microfinance organisation. (Photographer: Adeel Halim/Bloomberg)

CreditAccess Grameen Ends Flat On Stock Market Debut

After listing at a discount of nearly 9 percent to its issue price, shares of CreditAccess Grameen Ltd. ended flat on the bourses today.

The stock of the microfinance institution closed at Rs 418.35 apiece on the National Stock Exchange compared to its issue price of Rs 422.

The Rs 1,131-crore initial public offering was subscribed 2.22 times on the final day of bidding on Aug. 10, led by the demand from institutional investors. “This capital raised will be sufficient for next one-and-a-half to two years,” said Udaya Kumar Hebbar, managing director and chief executive office of CreditAccess Grameen.

The lender’s capital adequacy ratio stood at 37 percent as of March. “We normally keep 20 percent capital adequacy,” he said, “so that we will have a strong balance sheet and attract investment and lending, and we can continue to deliver a return on equity of over 20 percent.”

The maiden offer was a combination of offer-for-sale and fresh issue. Promoter CreditAccess Asia N.V. offloaded its stake worth Rs 501 crore through the IPO. The public offer comprised a fresh issue of shares worth Rs 630 crore.

Considering investors’ response to the issue, CreditAccess was expected to list either flat or at a small premium to the offer price.

At the listing price of Rs 385, the stock trades at 2.65 times its 2017-18 price-to-book value on a post-issue basis. That’s lower than Bharat Financial Inclusion’s ratio but at a significant premium to Satin Creditcare’s price-to-book value multiple.

CreditAccess Grameen’s return on equity for 2017-18 stood at 11.8 percent, down 500 basis points in the last four years.

Analysts’ recommendations for the stock were a mixed bag. While Antique and Emkay Global had recommended ‘Avoid’ owing to expensive valuation, Prabhudas Lilladher and SMC Global advised ‘Subscribe’. Prabhudas Lilladher, however, did not see any listing gain opportunity. But SMC Global said the lower return ratios had been priced in.

Geographical Presence

The microfinance institution is present in 132 districts across eight states. It has 516 branches and an active customer base of 18.5 lakh. The lender provides micro-loans to women and operates in a joint lending group model.

As much as 86 percent of the company’s loan book comes from just two states—Karnataka and Maharashtra. This high geographic concentration exposes the lender to adverse impact of any regional economic slowdown or political unrest like erstwhile SKS Microfinance in Andhra Pradesh.

Financials

The company’s assets under management grew sixfold in the last five years (57 percent compounded annual growth rate). Net profit grew at an annualised rate of 65.5 percent over financial years through March 2014-18.

Gross non-performing assets were below 0.1 percent over financial years through March 2014-17 but rose to 1.97 percent in the previous fiscal after demonetisation.

The lender’s net interest margin remained at about 12 percent in the financial years 2015-17 and stood at 12.7 percent in 2017-18.