About the Company

CreditAccess Grameen Limited (formerly known as Grameen Koota Financial Services Pvt. Ltd.) is a microfinance institution providing a wide range of financial services to the rural poor and low-income households, particularly women. It is registered with the Reserve Bank of India under the NBFC-MFI category. The company provides loans primarily under the joint liability group (JLG) model. Its primary focus is to provide income generation loans which comprised 87.02% of its total JLG loan portfolio, as of March 31, 2019. It also provides other categories of loans such as family welfare loans, home improvement loans, and emergency loans to existing customers.

CreditAccess Grameen is also an aggregator of the National Pension Scheme (NPS) of the Government of India. As of June 30, 2019, CreditAccess Grameen had 753 branches across various districts in the states of Karnataka, Maharashtra, Madhya Pradesh, Chhattisgarh, Tamil Nadu, Odisha, Kerala, Goa, and the union territory of Puducherry.

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 609 461 32.10% 440 38.41% 2031 1684 20.61%
PBT 99 30 230.00% -95 204.21% 194 451 -57.0%
PAT 72 23 213.04% -72 200.00% 142 328 -56.71%

Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 726 482 50.62% 543 33.70% 2466 1705 44.63%
PBT 79 41 93% -105 175% 180 462 -61%
PAT 56 31 81% -79 170.89% 131 335 -60.90%

Detailed Results

  1. The company had a good quarter with a 32% YoY rise in standalone revenues. The consolidated numbers are not comparable due to the addition of Madura MFI revenues in FY21 which was not present last year.
  2. The standalone PAT for the company saw a profit of Rs 72 Cr.
  3. GLP grew 13% YoY to Rs 13,587 Cr. Standalone GLP grew 14.6% YoY. MMFL GLP grew 7% YoY.
  4. Disbursements grew 42% YoY with CAGL up 42% YoY and MMFL up 41% YoY.
  5. New disbursals (June 2020- March 2021) accounted for 69% of GLP.
  6. The customer base fell 3.5% YoY to 3.912 million. The standalone customer base fell to 2.871 million down 1.2% YoY. MMFL’s customer base fell by 9.7% YoY.
  7. NII has risen 58.7% YoY to Rs 463.7 Cr. PPoP grew 83.3% YoY at Rs 329 Cr.
  8. Total ECL provisions were 5% in CAGL and 5.07% in MMFL.
  9. Overall RoA and RoE were at 1.5% and 6%.
  10. Overall GNPA was at 4.43%.
  11. CRAR: CAGL 31.8% (Tier 1: 30.5%), MMFL 20.9% (Tier 1: 17.7%).
  12. Collection efficiency at 94% for CAGL in March excluding arrears & including it collection was at 97%. MMFL collection efficiency excluding arrears was at 90% and including it was at 91%.
  13. Standalone debt to equity was at 2.4 times. MMFL debt to equity was at 5.3 times.
  14. Standalone cost to income ratios was at 29.2% in Q4 & 34.8% in FY21. Opex to GLP was at 4.6% in Q4 & 4.5% in FY21.
  15. WA cost of borrowing for CAGL was at 8.9% in Q4.
  16. Positive ALM mismatch with an average maturity of assets at 18.5 months and average maturity of liabilities at 22.7 months in CAGL.
  17. GL loans accounted for 96.4% of total loans for CAGL with the rest being retail finance.
  18. GL loan usage breakup was:
    1. Animal Husbandry: 45.7%
    2. Trading: 26.6%
    3. Partly Agri: 15%
    4. Production: 7.9%
    5. Housing: 1.6%
    6. Others: 3.2%
  19. Only 1 district for CAGL & 2 districts for MMFL have >4% of the total loan portfolio currently.
  20. Karnataka remains the biggest market for the company with 38.2% of GLP. Maharashtra comes in second with 23.4% of GLP and Tamil Nadu is third with 18.9% of GLP.

Investor Conference Call Highlights

  1. The consolidated customer base declined from 40.55 lakhs to 39.12 lakhs primary due to the write-off of over 2.4 lakh delinquent borrowers.
  2. The company added a total of 4 lakh new borrowers at CAGL primarily during H2 and 1.6 lakh borrowers at MMFL during the same period.
  3. Consolidated NII grew by 59% YoY.
  4. The company decided to recognize accelerated write-off of accounts worth Rs 273 Cr with 180 DPD and no payment since Jan 2021, resulting in an additional credit cost of Rs 64 Cr in Q4.
  5. The process integration of MMFL is expected to be complete in H1FY22.
  6. The company maintained liquidity of over 15% of gross AUM and holds undrawn sanctions over Rs 2614 Cr.
  7. It is seeing a decline of 5-6% in collections in April due to localized lockdowns.
  8. The drop in customer base is due to customer attrition, where 5% to 8% natural attrition is there accounting for 2.4 lakh, & a rise in portfolio per customer due to vintage linked increase.
  9. Q1 should stay subdued in terms of collections if customer accessibility is restricted, but any normalization here should lead to a revival in collections.
  10. Maharashtra continues to lag other states in terms of revival in collections due to the early lockdowns announced in the state.
  11. MMFL & CAGL collections are not comparable as they have different models with MMFL having a lag in collections due to the monthly model which leads to a delay in recognition.
  12. New customer loan size is Rs 30,000-35,000. The majority of new customer acquisition is taking place in Gujarat, Rajasthan, UP, Bihar, Jharkhand, and Odisha while there is Karnataka & Maharashtra is seeing customer set decline, particularly in Maharashtra as CAGL is not allowing employees to add new customers because wherever the collection efficiency is less than 90%.
  13. 61% growth comes from the new branches according to the management.
  14. Older customers have loan sizes of Rs 35000-50,000. 12-14% of old customers have loans of > Rs 50,000.
  15. 70-80% of MFI customers are in essential services. Thus this set remains resilient especially given that it has already gone through the tough period at the start of the pandemic and persisted through with good repayment behaviour.
  16. CAGL has suspended all group meetings at present, keeping the 2nd wave of COVID in mind. It is only asking one group member to keep the money ready with them and 1 collection agent will come to pick it up only from that member. This is because, despite the option of online payment, its adoption has remained low among customers given that it has become harder to go to banks to deposit cash.
  17. MMFL has not done any restructuring.
  18. The management hopes that MFIN will be able to convince the regulatory body to relax the cap on spread for MFIs to create a level playing field for everyone engaged in the MFI business.
  19. Only 20-25% of vintage customers eligible for an additional loan have availed of the benefit.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered a good Q4 performance which saw robust GLP, revenue, and disbursement growth but profits remained subdued due to high provisioning. The company rising collection efficiency till March but it is expected to drop due to the rise of the 2nd wave of COVID-19. The complete integration of Madura Microfinance is expected to be done in H1FY22. It remains to be seen whether the company will be able to come back to its pre-covid growth rate of 30-40% CAGR given the possible integration issues with MMFL and how the 2nd wave of COVID-19 will affect near term operations. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.

 


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 440 454 -3.08% 471 -6.58% 1422 1223 16.27%
PBT -95 146 -165.07% 105 -190.48% 95 421 -77.43%
PAT -72 108 -166.67% 78 -192.31% 70 305 -77.05%

 

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 543 454 19.60% 577 -5.89% 1740 1223 42.27%
PBT -105 146 -172% 107 -198.13% 102 421 -75.77%
PAT -79 108 -173% 80 -198.75% 75 305 -75.41%

Detailed Results

  1. The company had a dismal quarter with a 3% YoY decline in standalone revenues. The consolidated numbers are not comparable due to the addition of Madura MFI revenues in FY21 which was not present last year.
  2. The standalone PAT for the company saw a loss of Rs 72 Cr.
  3. GLP grew 39% YoY to Rs 12,321 Cr. Standalone GLP grew 15% YoY. MMFL GLP fell 0.9% YoY.
  4. The customer base expanded 41% YoY to 3.906 million. The standalone customer base grew to 2.837 million which is up 1,65,194 in Q3. MMFL’s customer base grew by 70120 in Q3.
  5. NII has risen 23% YoY to Rs 416.7 Cr. PPoP declined 15% YoY at Rs 170.3 Cr after de-recognition of INR 68.5 crore interest income (on Stage 3 portfolio @ 60+ dpd).
  6. Total ECL provisions were 5.94% in CAGL and 4.6% in MMFL.
  7. Overall RoA and RoE were at -2.3% and -9.4%.
  8. Overall GNPA was at 6.14% while NNPA was at 0.9%.
  9. CRAR: CAGL 31.4% (Tier 1: 30.7%), MMFL 23.3% (Tier 1: 19.2%).
  10. Collection efficiency at 91% for CAGL in Dec excluding arrears & including it collection was at 96%. MMFL collection efficiency excluding arrears was at 86% and including it was at 87%.
  11. Standalone debt to equity was at 2.2 times. MMFL debt to equity was at 4.4 times.
  12. Standalone cost to income ratios was at 43.5% and Opex to GLP was at 4.7%.
  13. The weighted average cost of borrowing was at 9.4% for CAGL & 10.8% for MMFL.
  14. Positive ALM mismatch with an average maturity of assets at 18 months and average maturity of liabilities at 23.7 months in CAGL.
  15. Consolidated Disbursements in Q3 rose 54% YoY to Rs 4590 Cr with CAGL at Rs 4032 Cr and MMFL at Rs 558 Cr.
  16. GL loans accounted for 96.1% of total loans for CAGL with the rest being retail finance.
  17. GL loan usage breakup was:
    1. Animal Husbandry: 46.2%
    2. Trading: 24.5%
    3. Partly Agri: 14.9%
    4. Production: 8.2%
    5. Housing: 2.2%
    6. Others: 4%
  18. Only 1 district for CAGL & 2 districts for MMFL have >4% of the total loan portfolio currently.
  19. Karnataka remains the biggest market for the company with 38.3% of GLP. Maharashtra comes in second with 24.8% of GLP and Tamil Nadu is third with 19.5% of GLP.

Investor Conference Call Highlights

  1. The collection efficiency excluding Maharashtra was 93%. Collection efficiency in Maharashtra was at 86%.
  2. Full paying customers increased to 88% in Dec from 81% in Sep.
  3. Partial paying customers were at 7%. Nonpaying customers were at 5% only from 8% in Sep.
  4. Maharashtra business is expected to come back to normal by Q4.
  5. New disbursements since June is now at 45% of GLP.
  6. CAGL is expected to surpass its GLP target for FY21.
  7. The company has written off Rs 111.9 Cr and has not recognized interest income of Rs 61.2 Cr on stage 3.
  8. The management admits that MMFL is growing at a slower rate than the industry.
  9. MMFL has written off Rs 19.9 Cr and not recognized interest income of Rs 7.3 Cr of Stage 3 portfolio.
  10. The company has cash and cash equivalents of Rs 1586.94 Cr. It also has Rs 1599 Cr of undrawn facility and Rs 4113 Cr of sanctions in the pipeline.
  11. The management states that COVID stress is now over for CAGL and it should now resume normal growth momentum.
  12. Most of the additional provisioning in Q3 is towards Maharashtra which is still under stress according to the management.
  13. The management states that most of the provisions should get reversed when Maharashtra stress goes away.
  14. Even in the 0 payment segment of 5%, the company is expecting a recovery of 10-15% at least.
  15. The management has stated that the company will probably not need additional provisions in Q4.
  16. The management is not worried by the industry trend of going cautious and it will maintain its normal growth rate in its operations in FY22.
  17. The management has stated that normal provisioning will indeed increase in absolute terms as the GLP rises but it will stay at below 1% of GLP which is normal for CAGL.
  18. The management is stated that Maharashtra recovery is slower than other states due to the extended lockdown as compared to other states. There aren’t any pending challenges in Maharashtra for CAGL.
  19. The share of Karnataka will keep coming down due to the rising share of new states like Gujarat, Rajasthan, Bihar, etc. Around 1/3rd of branches are in new states. Although the company will be stressing on geographical expansion, it will ensure that the GLP concentration remains low in % terms at the district level.
  20. MMFL collection model is monthly and thus there is a lag in recognition of collections. The management is looking to enhancing the on time collections and not changing the model for faster collection.
  21. The management maintains that elections and political promises do not cause much material impact on MFI business.
  22. The company is also allowing customers who are in good standing and have maintained repayment behavior to pre-close existing loan and move on to a new loan. This has resulted in a difference in disbursements and the rise in GLP. Older loans were running at rates above 21% while new loans are now issued at a lower rate of 19.35%. This a benefit for customers who want to close the old loan and get a new loan.
  23. The growth in mature states should slow down to 10-15% and the share of Karnataka should come down to 25% in the next 2-3 years.
  24. The credit losses in COVID should be similar to that in demonetization which was close to 4%.
  25. The company has reversed interest income for all partially paid customers beyond 60 DPD.
  26. The management is confident that there shouldn’t be any issues with its lenders due to the credit loss as it is an industry issue and this has already occurred before with demonetization when the company was not penalized.
  27. The industry growth for the next 4-5 years should be near to the normal range of 20-25% CAGR and CAGL can see growth of 30-40% CAGR in the same period.
  28. The management states that the company has enough capital to last till the second half of FY23 conservatively without any additional capital raise.
  29. NIM was down due to the reversal of interest income. Without the reversal, it would have been close to 12%. Similarly, portfolio yield was down due to the same reason.
  30. The company will keep liquidity at 12-15% of AUM and it will come down to 8% by Q2 next year.
  31. Any fall in the cost of borrowing will be passed on to customers and NIM will be kept stable at above 10%.
  32. New borrowing cost is at 8-8.5% and average borrowing cost is at 9-9.5% and this is expected to continue for the next 3-4 quarters according to the management.
  33. The management target branch expansion of 20-25% in new geographies but this was eased in FY21 due to COVID. This pace is expected to be carried on going forward.
  34. The behavioral change from the moratorium can result in credit losses rising by 50-60 bps. But this is not fixed currently and the management hopes that it doesn’t come to pass.
  35. The company is providing relaxation in terms of repayment as putting pressure on non-payers for repayment will start putting pressure on paying members in the same JLG.
  36. The company has simplified the application process so that the customer doesn’t need to visit the branch for completion and it has expanded payment process options to digital options to reduce customer travel and maintain their safety.
  37. Around 15-18% of disbursement was given to new customers in Q3.
  38. MMFL process integration should see the alignment of the operating model by March and the majority of the loan book will move to the Grameen model in 3 stages starting from Feb. The legal consolidation should take 3-4 months to complete. The process merger should be ready before the legal merger.
  39. The management reiterates that the company doesn’t have any plans to become a bank and it will continue on its mission to provide loans to low income segment especially in rural regions.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered a mixed Q3 performance which saw robust GLP, revenue and disbursement growth but profits remained subdued due to high provisioning. The company rising collection efficiency even in the stressed region of Maharashtra. The company’s acquisition of Madura Microfinance is expected to be done in the next 3-4 months in terms of both the process and legal. It remains to be seen whether the company will be able to come back to its precovid growth rate of 30-40% CAGR given the possible integration issues with MMFL and the ongoing COVID-19 pandemic. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.


Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 471 393 19.85% 510 -7.65% 981 769 27.57%
PBT 105 127 -17.32% 86 22.09% 190 275 -30.91%
PAT 78 101 -22.77% 64 21.88% 142 197 -27.92%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 577 393 46.82% 620 -6.94% 1197 770 55.45%
PBT 107 127 -15.75% 100 7.00% 207 275 -24.73%
PAT 80 101 -20.79% 75 6.67% 154 197 -21.83%

Detailed Results

  1. The company had a mixed quarter with 20% YoY growth in standalone revenues. The consolidated numbers are not comparable due to the addition of Madura MFI revenues in FY21 which was not present last year.
  2. The standalone profits for the company fell 23% YoY while PBT declined 17% due to a YoY increase in expenses (impairment of financial instruments) and increased provisions.
  3. GLP grew 41.5% YoY to Rs 11,183 Cr. Standalone GLP grew 16.5% YoY. MMFL GLP fell 3.6% YoY.
  4. The customer base expanded 47% YoY to 3.88 million. The standalone customer base grew to 2.802 million which is up 6.1% YoY. MMFL’s customer base grew by 2.6% YoY.
  5. NII has risen 31.6% YoY to Rs 330.9 Cr. PPOP grew 26.9% YoY at Rs 196.9 Cr.
  6. Total ECL provisions were 5.35% in CAGL and 4.3% in MMFL.
  7. Overall RoA and RoE were at 2.4% and 10.7%.
  8. Overall GNPA was at 1.77% while NNPA was at 0%.
  9. CRAR: CAGL 26.4% (Tier 1: 25.6%), MMFL 25.0% (Tier 1: 21.0%).
  10. Collection efficiency at 89% for CAGL in Oct.
  11. Standalone debt to equity was at 2.8 times. MMFL debt to equity was at 3.8 times.
  12. Standalone cost to income ratios was at 39.2% and Opex to GLP was at 4.6%.
  13. The weighted average cost of borrowing was at 11.1% vs 12.3% a year ago.
  14. Positive ALM mismatch with an average maturity of assets at 15.3 months and average maturity of liabilities at 23.4 months.
  15. Disbursements in Q2 was at Rs 1420 Cr.
  16. GL loans accounted for 95.3% of total loans with the rest being retail finance.
  17. GL loan usage breakup was:
    1. Animal Husbandry: 45.2%
    2. Trading: 21.8%
    3. Partly Agri: 14.7%
    4. Production: 8.5%
    5. Housing: 3.8%
    6. Education: 0.4%
    7. Others: 5.6%
  18. Only 1 district now has >4% of the total loan portfolio.
  19. Karnataka remains the biggest market for the company with 39.6% of GLP. Maharashtra comes in second with 24.8% of GLP and Tamil Nadu is third with 19.8% of GLP.

Investor Conference Call Highlights

  1. In the case of MMFL, the collection efficiency improved from 54% in June to 83% in September and 85% in October.
  2. Collections temporarily slowed in the second half of October due to cyclonic floods in certain districts of Maharashtra and Karnataka, intermittent lockdown imposed in Chhattisgarh, and a brief period of festivities in October.
  3. The standalone liquidity position further improved during the second quarter, with a cash & bank balance of Rs 1,662 Cr as of 30 Sep 2020.
  4. CAGL successfully completed QIP of Rs 800 Cr in Oct.
  5. 8% of CAGL customers hadn’t made any payments in Sep and 24% of this set have started repayments in Oct. Similarly, 7% of MMFL customers hadn’t made any payments in Sep and 33% of this set have started repayments in Oct.
  6. The majority of the non‐paying customer pool was located in Southern Maharashtra.
  7. Only 2‐3% of customers have not paid anything in the last 4‐5 months.
  8. Collection efficiencies are expected to normalize and come back to pre-covid levels by December for everywhere except Maharashtra.
  9. COVID provisions taken in Q2 were at Rs 66 Cr for CAGL and Rs 25 Cr for MMFL.
  10. The company has undrawn credit lines of Rs 1240 Cr with Rs 980 Cr for CAGL & Rs 260 Cr for MMFL.
  11. Disbursements in Q2 were made only to existing customers with good repayment history.
  12. The company is not providing top-up loans for its customers at all.
  13. New customers accounted for 40% of disbursements in Oct.
  14. The management expects AUM growth for FY21 to be at around 10-12%.
  15. The management is expecting an expected credit cost for COVID of a maximum of 3.75-4%.
  16. H2 growth should be back to normal for both CAGL & MMFL.
  17. >80% of customers have made full payments in Oct for CAGL.
  18. The management has admitted that the customer count has indeed fallen QoQ but it has stabilized and should start increasing again now.
  19. The management has stated that the customer shortfall should be temporary as these customers should be back to take fresh loans.
  20. Opex is expected to be at 4.8-4.9% an annual basis according to management.
  21. The company has not restructured any loans and have only extended the tenure of the payment period while keeping EMI the same.
  22. Long-term credit costs are expected to be at 1.1-1.25% due to a change in customer repayment behaviour.
  23. The merger process should be completed by Q1FY22 according to management.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered a mixed Q2 performance due to the challenges from state lockdowns and cyclonic floods. The company was able to maintain GLP growth but saw operating expenses rise QoQ while increasing collection efficiency once lockdown ended. The company’s acquisition of Madura Microfinance is expected to be done by Q1FY22. It remains to be seen whether the company will be able to maintain its current revenue growth pace of >30% & AUM growth of 10-12% in FY21 given the integration issues with MMFL and the ongoing COVID-19 pandemic. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.


Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 511 377 35.54% 461 10.85%
PBT 86 148 -41.89% 30 186.67%
PAT 64 96 -33.33% 23 178.26%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 620 377 64.46% 482 28.63%
PBT 100 148 -32.43% 41 143.90%
PAT 75 96 -21.88% 31 141.94%

 

Detailed Results

    1. The company had a good quarter with more than 65% growth in YoY revenues. There was additional growth in revenues due to the addition of Madura MFI revenues in Q1FY21 as well which was not present last year.
    2. The profits for the company fell 22% YoY while PBT declined 32% due to an increase in expenses (impairment of financial instruments) and increased provisions.
    3. GLP grew 54% YoY to Rs 11,724 Cr. Standalone GLP grew 27% YoY. MMFL GLP grew 6.5% YoY.
    4. The customer base expanded to 4.01 million. The standalone customer base grew to 2.876 million which is up 12.2% YoY. MMFL’s customer base grew 15.9% YoY.
    5. NII has risen 55.2% YoY to Rs 383 Cr. PPOP grew 56% YoY at Rs 255.6 Cr.
    6. Total ECL provisions were at Rs 476.8 Cr which is at 4.21% of the loan portfolio.
    7. The total COVID-19 additional provisioning buffer was at Rs 245.6 Cr which is at 2.17% of the portfolio.
    8. RoA and RoE was at 2.2% and 10.3%.
    9. GNPA was at 1.62% while NNPA was at 0%.
    10. The liquidity position was at Rs 1377 Cr as of 30th June 2020. CRAR was at 23.7%.
    11. On-time centre meetings with >98% customers. CAGL recorded a collection efficiency of 74% in June/ 76% in July. MMFL (Madura Micro Finance Ltd) recorded a collection efficiency of 54% in June/ 64% in July.
    12. CAGL: Moratorium book down from 100% in April& May to 26% in June and 24% in July.
    13. MMFL: Moratorium books down from 99% in April to 90% in May, 46% in June, and 36% in July.
    14. Debt to equity was at 3.3 times. Standalone debt to equity was at 2.9 times.
    15. Standalone cost to income ratios was at 31% and Opex to GLP was at 4.1%.
    16. The weighted average cost of borrowing was at 9.4% vs 10.3% a year ago.
    17. Positive ALM mismatch with an average maturity of assets at 17 months and average maturity of liabilities at 25.2 months.
    18. Disbursements were minimal in Q1 with only Rs 46 Cr done.
    19. GL loans accounted for 94.9% of total loans with the rest being retail finance.
    20. GL loan usage breakup was:
      1. Animal Husbandry: 45%
      2. Trading: 21%
      3. Partly Agri: 14%
      4. Production: 8%
      5. Housing: 4%
      6. Education: 1%
      7. Others: 7%
    21. Only 1 district now has >4% of the total loan portfolio.
    22. Karnataka remains the biggest market for the company with 40% of GLP. Maharashtra comes in second with 24.2% of GLP and Tamil Nadu is third with 19.9% of GLP.

Investor Conference Call Highlights

  1. The company is focussing on making its on-ground network and sales and customer-facing organization as agile as possible.
  2. The moratorium was only provided to those who needed it.
  3. Excluding Maharashtra, collection efficiency in July shall exceed 80%.
  4. The company has also kept on the annual increment and bonus plans to maintain employee morale.
  5. All the disbursal was done in cashless mode only.
  6. Only 17% of customers have not made any payments and are under full moratorium. The management expects less than 4-5% of these customers to not be able to pay up once the moratorium ends.
  7. The management has stated that if how the COVID-19 situation pans out will determine whether the company will be able to maintain its annual growth momentum.
  8. The company has sufficient capital, branches, and employees to grow 10-15% in FY21.
  9. The company aims to maintain growth in step with industry growth in the medium term and demand for the industry remains intact with good room for growth.
  10. The models of MMFL and CAGL are different in terms of their repayment times as MMFL has monthly repayment while CAGL has weekly payments. The management expects MMFL performance should be better than other competitors with the same monthly model.
  11. MMFL performed better than CAGL in Karnataka.
  12. The company has started providing repeat loans to groups who have made full repayments.
  13. Collections were mainly hampered due to local lockdowns in states and districts.
  14. Disbursements are expected to grow as new customer acquisition shall start once COVID-19 comes down and growth comes back as it does seasonally in H2 each year.
  15. The management expects a 4-5% increase in collections in Karnataka as local lockdowns ease going forward.
  16. The company’s decision to issue CP of Rs 200 Cr is mainly to diversify funding sources and not due to any liquidity overhang.
  17. The company has also taken approval for Rs 1000 Cr of NCDs to stay ready in case it needs to raise additional funds.
  18. The company has already 65% of accrued interest for moratorium 1 in June.
  19. The company restricts weekly meetings to 4-6 participants so that it can meet all customers within a month.
  20. New groups are formed of max 5 members to ensure adequate social distancing norms.
  21. There aren’t any specific fault lines exposed in the MFI business.
  22. The change in operations is happening towards digital processes which have been hastened due to the pandemic.
  23. There aren’t any inconsistencies in customers who have already started their repayment behaviour.
  24. The company has appointed PWC for integration efforts with MMFL. Technical integration should be completed by end of FY21.
  25. The company will be applying a singular operation process once the integration is completed. Even if a monthly collection policy is put in place, weekly meetings will continue to take place.
  26. Customer retention remains a top priority for the company.
  27. Repayment behaviour is very subjective and it is not appropriate to compare different regions as there may be different issues in different places.
  28. The growth is being driven by new customer acquisition in new states and the company remains focused on expansion in these states thus reducing the contribution of the top 3 states.
  29. The procedural approvals will take some time for the merger and it is expected to be completed in due course.
  30. The availing moratorium is not applied at the group level and is only put up at an individual level.
  31. The management expects normalcy in businesses to come back in 5-6 months.
  32. Initial installments that were paid after the moratorium will be used to pay off the accrued interest portion and the loan period will get extended.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered a stellar Q1 performance despite the challenges from lockdown and COVID-19. The company was able to maintain GLP growth and keep operating expenses down while increasing collection efficiency once lockdown ended. The company’s acquisition of Madura Microfinance which should help the company gain a ready and set customer base with good data and history of repayment as well as continue its pace of expansion. It remains to be seen whether the company will be able to maintain its current growth pace of >30% in FY21 given the integration issues with MMFL and the ongoing COVID-19 pandemic. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.


 

Q4FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 461 336 37.20% 454 1.54% 1684 1283 31.25%
PBT 30 118 -74.58% 146 -79.45% 451 498 -9.44%
PAT 23 76 -69.74% 108 -78.70% 328 322 1.86%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 482 336 43.45% 454 6.17% 1705 1283 32.89%
PBT 41 118 -65.25% 146 -71.92% 462 498 -7.23%
PAT 31 76 -59.21% 108 -71.30% 335 322 4.04%

 

Detailed Results

    1. The company had a good quarter with more than 43% growth in YoY revenues.
    2. The profits for the company fell 60% YoY while PBT declined 65% due to an increase in expenses (impairment of financial instruments).
    3. The company made disbursements of Rs 10,389 Cr in FY20 which was up 26.4% YoY.
    4. The standalone gross loan portfolio has risen to Rs 9896 Cr registering a YoY growth of 38.2%. the consolidated GLP rose 67.4% YoY after the addition of MMFL.
    5. The number of branches also expanded substantially to 1393 growing 107.8% YoY.
    6. The company now boasts of an active borrower base of 4.06 million which is also up 64.2% YoY.
    7. The standalone net interest income for the company rose 28.1% YoY showing strong growth.
    8. The company now has a presence in 248 districts across 14 states and 1 union territory.
    9. Operating expenses to gross loan portfolio rose to 4.9% for CGL in FY20..
    10. ROE was at 12.9% for CGL while ROA was at 3.6% in FY20.
    11. GNPAs were at 1.57% with a provisioning of 2.86% thus ensuring NNPA of 0%.
    12. The weighted average cost of borrowing for the company remained stable at 9.6% in Q4.
    13. The company maintains a comfortable liquidity position by maintaining a positive static liquidity gap every month.
    14. The company has a positive ALM mismatch with an average maturity of assets at 18.4 months and an average maturity of liabilities at 27.3 months.
    15. The debt to equity ratio for CGL was at 2.9 times.
    16. The company boasts of collection efficiency of 98%.
    17. The geographic distribution of portfolio exposure is well distributed across 156 districts with only no district having more than 4% exposure and top 5 districts only having 15% exposure of the consolidated entity.
    18. The company had a CAR of 23.6% in FY20.
    19. The company has taken additional provisions of Rs 82.9 Cr for COVID-19.
    20. The company maintained the cash of Rs 408 Cr in June 2020.
    21. 70% of combined GLP is in orange or green zones. >80% of customers are engaged in essential activities thus ensuring small or no income disruption from COVID-19.

Investor Conference Call Highlights

  1. The share of Karnataka has been reduced from 53% to 40% in terms of the loan portfolio.
  2. 97% of districts have <2% portfolio.
  3. The share of rural customers has risen to 86%.
  4. Excluding the transaction costs for the MMFL transaction and COVID provisioning, the consolidated PAT would have been Rs 490.6 Cr vs current PAT of Rs 335 Cr.
  5. The company has provided 100% moratorium to all of its customers till 31st The management has stated that only around 10% of customers had expressed interest in applying for additional moratorium till August.
  6. The company’s near term focus will be on maintaining stable and healthy liquidity so that it is able to lend to any customers that need funds.
  7. The company will ensure that EMIs remain the same for the customers and the company will not be capitalizing the interest to prevent the customers to pay out interest on the accrued interest.
  8. The company will evaluate the requirement for raising additional capital after Q2 in FY21.
  9. The company has relaxed the norm of providing additional loans after 6 months of borrowing. This has been done to help customers who may require additional funds.
  10. The company does not have any direct impact on the migrant crisis. This is because the company does not lend to anyone who has proof of residence of fewer than 2 years.
  11. The company is reducing the meeting size by having customers represent other customers to maintain COVID-19 prevention guidelines.
  12. GNPA increase has been mostly from stage 2 to stage 3. There has not been any movement of people moving into delinquency.
  13. The management has stated that most of the customers who the company thinks will opt for the second moratorium are in urban areas and in Tamil Nadu who has a lot of districts with more than 100 cases.
  14. 60% of the company’s lenders have provided them moratorium. The company has repaid the rest of the lenders.
  15. The company is also looking into diversifying into international funding and reduce dependence on banks to less than 50%.
  16. The management expects activity to resume in normalcy in the next few months since the impact on the MFI industry has not been as bad as anticipated. Since the majority of customers of CGL are in essential activities and are rural-based, the impact has been muted.
  17. Around 55% of borrowers pay weekly, 38% pay fortnightly while 8% pay monthly.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered a stellar FY20 performance with more than 38% standalone loan book growth. The company’s acquisition of Madura Microfinance which should help the company gain a ready and set customer base with good data and history of repayment as well as continue its pace of expansion. It remains to be seen whether the company will be able to maintain its current growth pace of >30% in FY20 given the integration issues with MMFL and the ongoing COVID-19 pandemic. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.


 

Q3 2020 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 453.56 350.76 29.31% 392.97 15.42% 1223.33 946.88 29.20%
PBT 145.92 153.71 -5.07% 127.01 14.89% 421.07 380.12 10.77%
PAT 107.99 99.74 8.27% 100.88 7.05% 304.72 245.43 24.16%

Detailed Results

    1. The company had a good quarter with more than 29% growth in YoY revenues.
    2. The profits for the company rose 8.3% YoY while PBT declined 5% due to an increase in expenses (impairment of financial instruments).
    3. The company made disbursements of Rs 2977 Cr in the current quarter which was up 68.9% YoY.
    4. The gross loan portfolio has risen to Rs 8872 Cr registering a YoY growth of 45.8%.
    5. The number of branches also expanded substantially to 928 growing 40.8% YoY.
    6. The company now boasts of an active borrower base of 2.77 million which is also up 22.5% YoY.
    7. The company announced the acquisition of Madura Microfinance which was the 11th largest MFI in India.
    8. The net interest income for the company rose 28.1% YoY showing strong growth.
    9. Operating expenses to gross loan portfolio rose to 5.1% which is a fall of 40 bps QoQ.
    10. ROE was at 16.5% from 17.7% last year.
    11. GNPAs was at 0.85% from 1.01% last year.
    12. The company maintains a provisioning of 1.61% thus ensuring NNPA of 0%.
    13. The weighted average cost of borrowing for the company remained stable at 10% in Q3.
    14. The company maintains a comfortable liquidity position by maintaining a positive static liquidity gap every month.
    15. The company has a positive ALM mismatch with an average maturity of assets at 15.5 months and an average maturity of liabilities at 26.6 months.
    16. The company boasts of collection efficiency of 98.3%.
    17. The geographic distribution of portfolio exposure is well distributed across 156 districts with only 1 district having more than 5% exposure and top 5 districts only having 21% exposure.
    18. The loan book consists of 78% income generation loans or IGL which yield 19% to 21% thus ensuring a high overall portfolio yield of 19.7% in the current quarter.
    19. The company continues to provide PAT guidance for FY20 of Rs 425 to 450 Cr.

Investor Conference Call Highlights

  1. The management has stated that the situation in Karnataka has been solved and the on-time collections in the affected districts were more than 70% and thus the provisioning for the quarter was higher as compared to Q2. The company’s exposure in these 2 districts is less than 1%.
  2. The management does not expect any big changes in the provision going forward and the company should be able to achieve its target PAT guidance by the end of the year.
  3. The management has mentioned that overall credit cost should not exceed by more than 1%.
  4. The management has stated that the infrastructure growth next year will not as high as it has been in FY20. The company will be focussing on stabilizing and consolidating at the new locations in most of next year.
  5. The company can see an increase in ticket size mainly on the back of repeat customers who come back for bigger loans. Another factor here is that the regulator has increased the limit for GLP to Rs 1.25 Lac. Thus management expects an annual increase of almost 10%.
  6. The management has stated that the company’s efforts to control risk exposure from geographical concentration has helped the company avoid major loss of operations like in the case of the recent Karnataka districts.
  7. The management has stated that Madura will continue to do business according to its established mandate and only after the acquisition is over will the management look for how to complete the merger and integrate the whole entity.
  8. The management expects the individual loans business to go slow and steady at present until the management crystalizes a definite operating mechanism and plan after which the company can push for robust growth in this segment.
  9. The management does not see any big departure in terms of growth rate and ROE once the acquisition is over. This is because Madura is in the same business and has a similar operating mechanism as the company and thus the management believes that the company will not have much problem integrating Madura.
  10. The company sees yields stabilizing at current levels as the company has increased the interest charged in November 2019.
  11. The management has mentioned that new branches can take anywhere between 12 to 18 months to turn profitable for the company.
  12. The management has explained that typically the loans granted to new customers is lower than old customers so that the company can observe and assess the customer repayment behavior and cash flows personally and thus upgrade the repaying customers in the next lending round.
  13. The individual loans are business loans to old customers with good repayment history and cash flows. The customers here have to have been associated with the company for at least 3 cycles.
  14. The company is not targeting any specific states and districts and it is only concentrated on expanding into districts or states that are contiguous to the existing territory for the company.
  15. This year 40% of customers should be first-time borrowers while 42% of customers have always borrowed from the company only.
  16. The company has 4 districts with >3% portfolio and it expects to reduce all districts to <3% portfolio in the next 2 years.
  17. The proportion of JLG to retail loans is expected to remain at current levels for the next 2-3 quarters at least.
  18. Madura brings in 11 lac customers which have only around 5-6% of overlap which means that the company will directly expand its customer base by a big margin through this acquisition.
  19. The management expects growth to taper down and stabilize at a CAGR of 25-30% for the next 5 years.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has delivered another good quarter performance with more than 45% loan book growth. The company has also been expanding rapidly in the past few quarters and the management has guided that in FY21, the company will mainly be focussing on leveraging these new branches and bringing to profitability. The company has handled the situation in Karnataka admirably and its conscious decision to reduce geographical concentration risk has worked well to prevent big loss of business in such cases. The company has also announced the pending acquisition of Madura Microfinance which should help the company gain a ready and set customer base with good data and history of repayment. It remains to be seen whether the company will be able to maintain its current growth pace of >30% next year when it has decided to cool off aggressive expansion and focus on integrating new territories. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.


 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 392.65 310.09 26.62% 376.7 4.23% 769.35 596.15 29.05%
PBT 127 114.05 11.35% 148.13 -14.26% 275.14 226.4 21.53%
PAT 100.88 73.46 37.33% 95.83 5.27% 196.71 145.68 35.03%

Detailed Results

    1. The company had a stellar quarter with more than 27% growth in YoY revenues.
    2. The profits for the company rose in line with revenues to grow more than 37% YoY despite PBT growth of only 11% due to the reduced tax expenses.
    3. The company made disbursements of Rs 2186 Cr in the current quarter which was up 39.2% YoY.
    4. The gross loan portfolio has risen to Rs 7905 Cr registering a YoY growth of 36.4%.
    5. The number of branches also expanded substantially to 887 growing 35.2% YoY.
    6. The company now boasts of an active borrower base of 2.64 million which is also up 27.1% YoY.
    7. The company entered into the states of Gujarat, Rajasthan Bihar and Uttar Pradesh in Q2FY20.
    8. The net interest income for the company rose 26.2% YoY showing strong growth.
    9. Operating expenses to gross loan portfolio rose to 5.3% which is a rise of 50 bps QoQ.
    10. ROE improved slightly to 16.1% from 15.7% last year.
    11. GNPAs declined to 0.52% from 1.01% last year.
    12. The company maintains a provisioning of 1.23% thus ensuring NNPA of 0%.
    13. The weighted average cost of borrowing for the company remained stable at 10.3% in Q2.
    14. The company maintains a comfortable liquidity position by maintaining a positive static liquidity gap every month.
    15. The company has a positive ALM mismatch with an average maturity of assets at 14.7 months and an average maturity of liabilities at 23.7 months.
    16. The company boasts of collection efficiency of 98.8% which is exemplary for a small finance organization.
    17. The geographic distribution of portfolio exposure is well distributed across 156 districts with only 1 district having more than 5% exposure and top 5 districts only having 21% exposure.
    18. The loan book consists of 78% income generation loans or IGL which yield 19% to 21% thus ensuring a high overall portfolio yield of 19.5% in the current quarter.
    19. The company continues to provide PAT guidance for FY20 of Rs 425 to 450 Cr.

Investor Conference Call Highlights

  1. The management expects the overall cost of borrowing to be around 10% going forward.
  2. The management expects to maintain an AUM CAGR of 30% in the next 5 years.
  3. The company made fresh borrowings of Rs 1472 Cr in Q2 and around Rs 100 of this has been through overseas borrowing. The company also got a long term funding of Rs 300 Cr from a financial institution.
  4. The management sees a minimal impact on MFI business from the rural slowdown.
  5. The company has seen expenses rise sharply in the quarter because of branch expansion and new hiring due to the network expansion.
  6. The management has stated that normal branches start producing business in 2-3 months since opening and take around 14 months to breakeven. Thus the company can expect some ramp-up in performance in the next 2 quarters from this expansion.
  7. The management has stated that they will continue to use the direct assignment as well as securitization for funding requirements and will be considering whichever option is best for them at any given time.
  8. The company is still the only lender to 33% of its customer base. The company continues to maintain this number despite entering new states as its focus is only on rural areas which are still underpenetrated.
  9. The company added 76000 new customers in Q2.
  10. The company has mandated all loans have to be less than Rs 1 Lac and it restricts the loan amount to Rs 80000 for most customers.
  11. The company’s overall ticket size in UP, Bihar, Jharkhand, and Orissa is between Rs 25000-35000 with an average outstanding per customer at Rs 29000.
  12. The management has stated that it has not observed any overheating in any of its operating geographies and that the business continues to stay stable.
  13. The management has maintained that the company should be able to maintain NIM of around 12-12.5% and it will go down slightly when leverage goes up in the future. The current NIM level of 9.2% should be a bottom and it should normalize from next quarter onwards.
  14. The management maintains that the main reason for the high growth guidance for almost all players in the industry is that despite the wide footprint of the industry the overall penetration is still small and thus there is a lot of room to grow.
  15. The average household income of the borrowers is between Rs 1.2 Lacs to Rs 1.6 Lacs.
  16. The management has clarified that it expects higher disbursement in Q4 because as part of the company’s business model, most of the network/ branch expansion is done in Q1 and Q2 while the performance from these new locations starts to get reflected from Q3 and Q4 onwards.
  17. Around 62% of the customers would be in the second cycle or more at present.
  18. The rejection rate is around 40%.
  19. The management wants to bring down the contribution of Karnataka down to 30% in the next 3 years.
  20. The management has stated that the ideal capital adequacy envisioned for the company is around 20% and it will strive to keep the figure near that level. The company currently has a capital adequacy ratio of 34%.
  21. The management has clarified that the company does not lend to farmers as the ticket size would have to be bigger and thus the company is not vulnerable to farm loan waivers.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable microlenders in the country. Their revolutionary JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company has maintained its good growth momentum where profit growth has been a little stressed mainly due to the rise in expenses arising from setting up new branches and hiring new employees at these branches. These branch expansions are expected to be yielding their share from Q4 onwards which has brought up future expectations of revenues. The management maintained that despite the wide footprint of the industry and its players, there is still a lot of room for the industry to grow mainly on the back of the overall under-penetration of the industry. It remains to be seen whether the company will be able to maintain its impressive growth momentum once it has expanded to all the states in the country. Nonetheless, given the latent potential of the industry and the consistent performance history of the company, Credit Access Grameen cements its place as one of the country’s top Microfinance companies. Valuation, however, at current levels is very stretched at more than 4 times the book leaving almost no margin of safety at the current price.


 

 

Notes on Annual Report (FY2018-19)

  • In terms of the GDP per capita, for example, our National Capital Region is roughly equal to that of a country like Indonesia. States like Bihar and Uttar Pradesh are among India’s poorest.
  • It is thus imperative that in a country poised for such dramatic growth, the paradoxes must be solved, especially at the financial grassroots level.
  • This is where Microfinance Institutions (MFI) have significantly contributed to this process by empowering the rural population with easy credit access in forms of loans.
  • By uplifting the rural poor, microfinance institutions are spreading prosperity and providing opportunities to the unserved and underserved in India.
  • Nurtured as an NGO at its inception and transitioned into an NBFC in 2007-08, CA Grameen has attracted key investors and transformed itself into a mainstream NBFC-Microfinance Institution (MFI) today.
  • Going forward, we expect the Indian microfinance sector to continue the current consolidation trend and CA Grameen, which is the largest non-bank microfinance institution (excluding Bharat financial which is in a merger process with Indusind Bank) to be among the top players in the country, continuing to enhance its stature in the microfinance market.
  • Women tend to use resources more productively, so improving financial access for women may increase their participation in the family and community development. That is why CA Grameen targets women.
  • The credit rating agency, CRISIL, has assigned the industry’s top MFI grading of ‘M1C1’to CA Grameen. According to CRISIL, this signifies ‘Highest-capacity’ of the MFI to manage its operations in a sustainable manner and ‘Excellent ‘performance on the Code of Conduct dimensions.
  • Profile of NBFC-MFIs:
    • Top Ten Large MFIs’ GLP constituted 74% of the GLP of the NBFC-MFI segment. As of March 31, 2019, rural portfolio contribution stood at 74%
    • Loans for Agri-Allied activities (mainly for animal husbandry) account for 57% of the GLP. Trade/services and manufacturing loans account for 40% and household finance loans account for 3% of GLP
    • Region-wise distribution of the portfolio is as follows:
      • South: 24%
      • West: 15%
      • North: 14%
      • Central: 09%
      • East & North East: 38%
    • Karnataka, Bihar, Odisha, Maharashtra and Uttar Pradesh account for 52% of GLP. The top 10 States account for 84% of the total industry loan amount outstanding.
  • Higher Rural Penetration
Borrowers March,2015 March,2016 March,2017 March,2018 March,2019
Rural 68% 74% 78% 81% 84%
Urban 32% 26% 22% 19% 18%

 

  • As of March 31, 2019, the Company was ranked in the 2 position among the 23 large MFIs (3 Position during FY 2017-18). The Company held 11% share of total GLP of the NBFC-MFI segment (10 as of March 31, 2018).
  • Employees interact with customers at Kendra meetings which are conducted on weekly and bi-weekly basis. At these meetings, apart from completing loan related transactions, customers are provided with information on various topics of interest to them such as financial literacy, hygiene, legal rights etc.

 

Sources of Competitive Advantage

Financial Performance

 

Analyst’s View

CAGL looks like a fast-growing MFI which has all the building blocks of a very sustainable business model in place. They are trying their best to reduce their dependence on the state of Karnataka. If the momentum of growth in GLA/AUM and branches continues as it has been in the past, it has a long tailwind. However, we believe, that the valuation at around 4 times price/book (TTM) is a little too high compared to the valuation of its peers. Nonetheless, CAGL is a stock worth tracking.

 


 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 376.7 286 31.71% 336.44 11.97%
PBT 148.13 112.36 31.84% 117.6 25.96%
PAT 95.83 72.2 32.73% 76.3 25.60%

 

Detailed Results

    1. The company had a stellar quarter with more than 31% growth in YoY revenues.
    2. The profits for the company rose in line with revenues to grow more than 32% YoY.
    3. The company made disbursements of Rs 2310 Cr in the current quarter which was up 42.9% YoY.
    4. The gross loan portfolio also rose sharply to Rs 7619 Cr registering a YoY growth of 39.4%.
    5. The number of branches also expanded substantially to 753 growing 31.4% YoY.
    6. The company now boasts of an active borrower base of 2.56 million which is also up 32.1% YoY.
    7. The company expanded into Jharkhand in Q1 and entered into the states of Gujarat and Rajasthan in July ’19.
    8. The net interest income for the company rose 32.4% YoY showing strong growth.
    9. Operating expenses to gross loan portfolio remained stable at 4.8%.
    10. ROE saw a sharp YoY decline to 15.9% from 19.4% last year.
    11. GNPAs declined to 0.55% from 0.88% last year.
    12. The company maintains provisioning of 1.1% thus ensuring NNPA of 0%.
    13. The weighted average cost of borrowing for the company rose slightly to 10.2% from 9.9% in the last quarter but it is still lower than the 10.5% Weighted Average COB in Q1 last year.
    14. The company maintains a comfortable liquidity position by maintaining a positive static liquidity gap every month.
    15. The company has a positive ALM mismatch with an average maturity of assets at 15.3 months and average maturity of liabilities at 23.4 months.
    16. The company also has Rs 2838 Cr of funds in the pipeline from banks and FIs.
    17. The company boasts of a collection efficiency of 98.8% which is exemplary for a microfinance organization.
    18. The geographic distribution of portfolio exposure is well distributed across 146 districts with only 1 district having more than 5% exposure and the top 5 districts only having 22% exposure.
    19. The loan book consists of 85% income generation loans or IGL which yield 19% to 21% thus ensuring a high overall portfolio yield of 19.7% in the current quarter.
    20. The company has provided PAT guidance for FY20 of Rs 425 to 450 Cr.

Investor Conference Call Highlights

  1. The company is targeting 35% to 40% of the funds’ requirements from foreign sources in the long term.
  2. The company will not raise any money through commercial papers to avoid changing their positive ALM mismatch.
  3. The company added 83 new branches in Q1.
  4. The company has observed that the rural market seems to be in a state of subdued consumption demand and slow growth in assets. The company is aiming to help provide timely help to rural consumers in these trying times.
  5. The company is also aiming to help shift rural borrowing from informal sources to formal ones like microfinance institutions. The company is quite successful in this initiative with more than 40% of its new customers being first-time borrowers from institutional sources.
  6. The company also hires more than 90% of its employees from the rural regions they operate in to maintain high customer engagement and high borrower retention.
  7. The company also raised Rs 945 Cr of funds for lending in Q1.
  8. The company is not expecting any big adverse impact from the ongoing auto slowdown due to different customer mix hailing for predominantly small rural markets.
  9. The company maintains that the current NIM of over 12% is at normalized levels and is expected to stay stable above these levels.
  10. The management has mentioned that they expect to grow with a CAGR of at least 30% for the next 4-5 years.
  11. The company has observed that the portfolio concentration is slightly higher in the east, contrasting it with population figures in those areas, the company’s penetration is still below normalized levels and there is a significant opportunity for growth here.
  12. The company has also observed that on new entry into any area, more than 40% of customers are first-time borrowers, thus highlighting very limited competition in new rural areas.
  13. In terms of ticket size, the average size is at Rs 28000 and more than 58% of customers have a ticket size of < Rs 30000.
  14. The company has recently implemented end to end digitalization of data entry and maintenance for increased convenience and enhanced operations and risk management.
  15. The company expects to remain at <1% GNPAs in the long term.
  16. The physical expansion plans for the company are mostly done mostly in the first 2 quarters of the financial year. Thus the cost to income ratio rises for Q1 as compared to Q4. The company expects to stay in the range of 30% – 35% for this figure.
  17. The average number of customer groups that each employee manages is limited to 4-5 groups per day in order to avoid overheating and ensure uniform service management.
  18. The company emphasizes that they do not reward their employees on disbursements but rather they incentivize the collections process and servicing of the customers. This is to remove the tendency to over lend that all types of lending organizations have suffered from.
  19. The management has mentioned that they can confidently achieve 10%-15% just on existing customers.
  20. The company does not have any set hard limits on how much they can lend as ticket size.
  21. The borrowing outstanding for the company is around Rs 5100 Cr including securitization.
  22. The attrition in the company is around 23% and no employee handles any group for more than a year to prevent any adverse effects when that employee moves away from the branch or leaves.
  23. The company does not expect much adverse impact from bad monsoons as they are mostly catering to non-agricultural customers.

Analyst’s View

Credit Access Grameen has emerged as one of the most reliable and fast-growing microlenders in the country. The JLG model has helped bring communities of borrowers together and helped reduce overall risk from their lending to a very large extent as seen in their low NPA numbers. The company is still to expand into many states in the country and thus it is fair to say that the opportunity size for them is growing bigger as they move forward. The company has yet to face any problems from the liquidity slowdown in the NBFC sector and continues to enjoy the support of borrowers and lenders alike. It remains to be seen what unique challenges they will face as they expand to new states. The valuation at current levels is a little too stretched, so waiting for correction seems prudent. Nonetheless, Credit Access Grameen is still a good stock to watch out for.

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