Rs. 1,100-Crore CreditAccess Grameen IPO Opens: Should You Subscribe?

CreditAccess Grameen's IPO or initial public offer opened for subscription on Wednesday. At 10:30 am, bids received were 67,935 against a total issue size of 1,88,29,684. The public offer of Bengaluru-based microfinance institution - CreditAccess Grameen - is a mix of fresh issue and an offer for sale of a total of 2,69,48,255 shares. That includes a fresh issue of up to Rs 630 crore and an offer for sale (OFS) up to 11,876,485 shares. With that, the CreditAccess Grameen public offer is estimated at Rs 1,126-1,131 crore. CreditAccess Grameen has set a price range (share price) of Rs 418 to Rs 422 for the public offer. Shares in the CreditAccess Grameen issue are available for subscription in lots of 35. BRLM, ICICI Securities, Credit Suisse Securities, IIFL Holdings and Kotak Mahindra Capital Co are the book running lead managers for the IPO.

Here are five things to know about the CreditAccess Grameen IPO:

1. Important dates

The CreditAccess Grameen IPO will be open for subscription from Wednesday, August 8 to Friday, August 10. CreditAccess Grameen shares will be listed on stock exchanges NSE and BSE, and will likely make a market debut on August 20.

2. Fund utilization

CreditAccess Grameen has said it will utilise the proceeds from the fresh issue towards augmenting its capital base to meet future capital requirements. The company will not receive any proceeds from the offer for sale.

3. Profile

CreditAccess Grameen Limited, formerly known as Grameen Koota Financial Services Pvt Ltd, is a microfinance institution based in Bengaluru. CreditAccess Grameen Limited received a certificate of registration under the category of NBFC (non-banking financial company) from the Reserve Bank of India (RBI) in January 2018. CreditAccess Grameen offers a range of financial services to rural households. Its financial services portfolio includes income generation, family welfare and home improvement loans. According to credit ratings agency Crisil, CreditAccess Grameen was the third largest NBFC-MFI in the country in terms of gross loan portfolio as of March 31, 2017.

4. Promoter

CreditAccess Grameen is promoted by CreditAccess Asia NV, a multinational company specializing in MSE (micro and small enterprises) financing backed by institutional investors. CreditAccess Asia NV has microlending operations spread in four Asian countries through its subsidiaries.

5. Risk factors

The company has indicated certain risk factors. CreditAccess Grameen's business is concentrated in Karnataka and Maharashtra, with gross assets under management (AUMs) of 58.08 per cent and 26.73 per cent respectively, as of March 31, 2018. Any developments - including economic slowdown, political unrest, disruption or sustained economic downturn - that make the company's products in these states less beneficial may affect the company's business, results of operations, financial condition and cash flows, according to CreditAccess Grameen's red herring prospectus.

Microfinance loans are unsecured and are susceptible to various operational and credit risks which may result in increased levels of NPAs (non-performing assets), thereby adversely affecting the company's business, results of operation and financial condition, according to CreditAccess Grameen. Besides, an increase in its portfolio of non-performing assets and any provisions "may materially and adversely affect our business and results of operations", it mentioned.

What analysts say

CreditAccess Grameen has a strong growth in financials and its customer-centric business model has resulted in high customer retention, according to brokerage HEM Securities, which has a 'subscribe' rating on the issue. Although the company has shown strong growth in its financials added by solid fundamentals as some of its ratios are one of the best in the industry, low return on equity which will dilute post-listing, is a concern, according to HEM Securities.

CreditAccess Grameen has registered a topline growth (CAGR) of 57 per cent from FY14 to FY18 and a bottomline growth of 65 per cent. During this period, its gross AUMs have increased at a CAGR of 57 per cent while disbursements increased 55 per cent from FY14 to FY18. The declining cost-to-income ratio of the company is an indicator of sound financial health, according to HEM Securities.

As of March 31, 2018, CreditAccess Grameen served over 1.85 million active customers out of a total customer base of 2.19 million. For the six months ended September 30, 2017, it had an active customer retention rate of 90 per cent (annualised), as against the median active customer retention rate of 78 per cent registered by 15 leading microfinance players as of September 30, 2017, according to the brokerage.

CreditAccess Grameen's active customer retention rate for financial year 2017-18 stood at 84 per cent.