Microlender CreditAccess Grameen is launching its IPO today and has already placed 8,041,617 shares with anchor investors. These shares are allotted at INR 422 apiece – the upper end of the price end – totaling to INR339.36 crore (INR3.39 billion). Prominent among the anchor investors are Neuberger Berman Emerging Markets Equity Fund, Eastspring Investments India Equity Open, Pictet – Indian Equities, ICICI Prudential Banking and Financial Services Fund, Sundaram Mutual Fund, Citigroup Global Markets Mauritius and BNP Paribas Arbitrage. The company, better known as Grameen Koota, has priced its maiden offer at INR418 – 422 per share and plans to mobilize as much as INR1,131.19 crore through a combination of fresh shares and an Offer For Sale (OFS). Several analysts and brokerage houses have come up with their research reports highlighting the advantages in the company’s business model, although some have warned about the high valuations the company is demanding. Here is a quick overview of CreditAccess Grameen analyst recommendations:
Angel Broking is bullish on the prospects of the company and has a subscribe rating. “At upper end of the IPO price band, CAGL is valued at 3.8x FY18 book value (pre-IPO) and on post dilution basis at 2.9x of BV. The strong sponsorship of CreditAccess Asia, along with a well capitalised balance sheet and an experienced and focused management provides an excellent base for the next level of growth. Based on the above positive factors we assign SUBSCRIBE rating to the issue,” said the firm’s research note.
SMC Global Securities is also bullish on the IPO. “At the upper end of the price band the issue is offered at 3.8x its Pre-Issue BV and on post-dilution it is valued at 2.9x its BV. While the FY18 ROE of 11.8% is still suboptimal compared to some of the large MFIs (ex-MFI converted banks) we feel the valuation adequately captures this and any improvement in the ROE will aid to further valuations going ahead. We feel the issue is attractively priced considering the above factors and hence recommend SUBSCRIBE,” noted the brokerage house.
CreditAccess Grameen analyst recommendations: Upside capped
Prabhudas Lilladher feels one should invest in the IPO for the long term as there will be no listing gains. “RoEs for the company have declined almost 800 bps in past 3 years and 500 bps in past 4 years. High opex intensive business (38% avg cost-income), elevated credit costs (3%+ past 2 years) have restricted RoEs to 12%. Against this backdrop, post-IPO valuations (30x+ P/E and 2.9x P/B FY18, 2.6X FY19E) appear expensive and believe stepping up return profile is the key. Any improvement in credit costs and NIMs being retained at 10%+ levels should prove as key catalysts. While, we recommend Subscribe for LONG TERM, do not expect any short term gains,” noted its analyst in the IPO note.
Similar views were echoed by Canara Bank Securities. “CreditAccess Grameen Ltd has been showing robust growth in AUMs with consistent decent profits for the past 5 years. However geographical concentration, unsecured loan book, rapid growth in incremental loans remains a matter of concern. As on 31st March’18 CreditAccess Grameen Ltd. had an EPS of Rs 12.26 and NAV of Rs 111.12. The company would trade at 31.41x P/E and P/B of ~3.80x (Pre Issue) and ~2.94x (Post issue) for FY18 earnings. Considering the past performance, risk factors associated with the unsecured Micro-Finance lending, we believe that the stock is already priced and has a limited upside potential in the short term. Investors may subscribe to the IPO for long term gains,” said the firm.
Asit C Mehta added to cautious CreditAccess Grameen analyst recommendations and has advised investors to go for long term. “CreditAccess Grameen Limited is an acknowledged NBFC with forte in microfinance lending. They are focused on rural India and the under penetrated rural market provides ample growth opportunities for CAGL. In past five years, their Gross AUM has increased with a CAGR of 57.45% and management is confident to carry the same growth in the near future. At the upper price band of Rs.422 its asking price is at a P/E of 35.17x and P/BV of 3x based on FY18 data, which makes it fully priced. We recommend SUBSCRIBING the issue with long-term prospective,” said analyst Vrinda Aditya in the research note.
Similarly, Choice Broking has a positive view on the IPO but warned that the upside is limited. “CAGL’s demanding valuation at Rs60,496.3 mn is valued at P/ABV of 2.9(x) to FY18 annualized adjusted BVPS (post issue) which is premium to peers (Ujjivan Financial -2.7x, Equitas – 2.8x). At this valuation, the issue presents limited room for further upside. Considering all these parameters, we assign ‘Subscribe with Caution’ rating to the issue. However, we think that business’s fundamentals are strong and it will create value in the short to medium term. Investors are thus recommended to invest in this issue for short to medium term period,” said the brokerage house in its report.
Post-issue dilution in key ratios is the prime concern for Hem Securities which also finds that there will be limited upside at listing. “The company is bringing the issue at P/B multiple of 2.94 on post issue book value at higher end of price band of Rs 418-422/share. Although co has shown strong growth with CAGR of more than 50% from FY14 to FY18 in its financials added by solid fundamentals as some of the co’s ratios are one of the best in industry but low ROE which will dilute post listing is a concern. Hence, we rated issue a “Subscribe” one with limited upside potential,” said the brokerage house further adding to cautious CreditAccess Grameen analyst recommendations.
Most of the CreditAccess Grameen analyst recommendations highlight that the company is performing well on key financial parameters but valuations are stretched. This is in line with what we said in our analysis of the upcoming IPO. At the same time, a plethora of listed microfinance players at better valuations mean that investors have no reason to pay a premium for the company over its peers. We will update this list as more analyst reports and recommendations pour in. Meanwhile, head to our discussion page to see what fellow investors think about the IPO.