KRChoksey CreditAccess Grameen LTD Report

CreditAccess Grameen Ltd.
Initiating Coverage 20th July, 2020

India Equity Institutional Research II SalesInitiating
Note Coverage II 20th July, 2020 Page 2
CreditAccess Grameen Ltd. Leading MFI, well placed to benefit from India’s rural credit growth story
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 554 INR 684 23% 79,760 BUY NBFC-MFIs
CreditAccess Grameen Ltd (CAGL), a Large Microfinance Institution (MFI) was mainly established to serve India’s low income groups
(LIGs). CAGL is a leading MFI with INR 99 bn of AUM in FY20, highest amongst all 53 MFIN members. Major portion of portfolio derives
from states of Karnataka, Maharashtra and Tamil Nadu, primarily southern India. Strong rural existence, established operating
structure with notable GLP growth gaining its sturdy market share in the MFIN industry. Focus on geographic diversification to
minimize the concentrated risk and hence would maintain the asset quality at same levels. India’s 70% of rural population, RBI’s financial
inclusion plan (2001) and Government’s Jan Dhan Yojana (2014) has presented more scope in microfinance industry. We believe CAGL
has a strong ability to get back to normalcy post lockdown, as 82% of its overall portfolio is from rural. Production and consumption is
largely local in rural areas. Post COVID- 19, microfinance industry would initiate rural economic growth and revenue generation.
MARKET DATA Investment Rationale:
Shares outs (Mn) 144 Leading NBFC-MFI with strong rural penetration through group lending
Equity Cap (INR Mn) 1,441 Gross loan portfolio (GLP) grew by 53% at 5 year CAGR backed by robust rural
penetration and experienced leadership by management. Diversified product portfolio,
Mkt Cap (INR Mn) 79,760 industry’s lower lending rates (~18%-21%) and high touch model with weekly customers
connect led to robust growth in loan book. We expect CAGL to increase their advances
52 Wk H/L (INR) 1001/306
by 24%/27% to INR 113.7/144.5 bn in FY21/22E, respectively.
Volume Avg (3m K) 144.1 Resilient asset quality; focus on geographic expansion to ease concentrated risk
Face Value (INR) 10 CAGL has reported GNPA/NNPA at 1.57%/0.0% in FY20 v/s 0.61%/0.0% in FY19, respectively
with provisioning of 2.86%; it includes INR 82.9 cr additional provisions on account of
Bloomberg Code CREDAG IN
COVID-19 impact in FY21. CAGL has passed on loan moratorium to its all customers as
announced by RBI to support its customers. CAGL had conducted a survey in May’20 to
SHARE PRICE PERFORMANCE understand customers’ requirements. Accordingly, ~70% of its customers have started
repayments in the month of Jun’20. However, 20% of customers would require few
240 weeks to start the operations to repay back and ~10% of customers are expected to opt
for the extended moratorium.
CAGL’s unique contiguous district based expansion strategy is the core of loan book
growth while maintaining asset quality. The strategy is to maintain lower exposure per
160
district. Currently, company is more focused towards geographic expansion to ease
concentrated risk.
Strong profitability indicators with potent performance
80
CAGL has shown a strong and consistent performance in its historic trend with
improvement in operational efficiency. Topline grew by 49% (FY15 – FY20 CAGR) where
Total income reported at INR 11.1 bn in FY20. Bottom line has been grown at 48% (FY15 –
0
FY20 CAGR) with net profit reported at INR 3.3 bn in FY20 (including the effect of
Aug-19
Aug-18
Apr-19
Dec-18
Dec-19
Apr-20
additional provisions INR 82.9 cr on account of COVID-19 impact in FY21). CAGL has
improved its operating efficiency with cost to income ratio at 36.6% and opex/GLP ratio
at 4.9% in FY20. The management is focused to maintain cost to income ratio in the
CAGL Sensex
range of 30-35%. However, recent branch expansion has led to marginal increase in
operating expenses.
MARKET INFO
As on Mar’20, It has reported 23.6% of capital adequacy and 22.3% of tier 1 capital ratio
SENSEX 37,114 with ROE/ROA at 12.9%/3.6%, respectively. Strong capital base and adequate liquidity
NIFTY 10,928 helped CAGL to manage its operations. It is now focusing on diversifying its funding with
30-40% from international investors.
SHARE HOLDING PATTERN (%)
Particulars Jun 20 Mar 20 Dec 19

Promoters
FIIs
79.91
6.16
79.95
5.59
80.01
6.29
25% 24%
DIIs 8.40 8.66 7.77
Others 5.53 5.80 5.94 Advances CAGR between PAT CAGR between FY20
FY20 and FY22E and FY22E
Total 100.00 100.00 100.00
Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 www.krchoksey.com
is also available on Bloomberg KRCS<GO>
Research Associate
Thomson Reuters, Factset and Capital IQ
Priyanka Baliga, priyanka.baliga@krchoksey.com, +91-22-6696 5408

In Q4FY20, CAGL’s yield and cost of funds were reported at 19.6%/9.6%, respectively. NIM reported at 12%. We estimate PAT of INR
3.5 bn (7.5% YoY) and ROE/ROA expected to deliver at 2.9%/12.4% in FY21E.
Synergies from merger with Madura Micro Finance Ltd (MMFL)
Cultural resemblance and proved business of MMFL, improvement in profitability led by successful business operations provides a
positive outlook from this merger. MMFL has largest network in Tamil Nadu followed by Maharashtra, Bihar, Odisha, Kerala,
Karnataka, West Bengal and Pondicherry with total GLP of INR 21bn as on FY20.
Merger with MMFL has multiplied its loan portfolio from Tamil Nadu by 2.5 which reduced the portfolio concentration of Karnataka
from 53% in FY19 to 40% in FY20. Also, it has increased its existence in 248 districts where combined branches per district has
increased to 5.6 from 4 (standalone CAGL) in FY20. MMFL has 96% of loan portfolio from rural areas and consolidated GLP of CAGL
raised to 86% from 82% where microfinance business is more resilient to get back to normalcy.
Valuation
Current economic crisis led by COVID-19 is a concern for all investors to gauge the expected business loss with required halt in
business operations. Indian economy has been struggling to perform after the various reforms announced by Government of India.
According to RBI Governor, India’s lesser exposure to global economy would limit the contraction in growth; as only a fifth of
exports of services and goods are of total economy. RBI announced loan moratorium and INR 20 lakh crore package under Atma
Nirbhar Bharat to boost liquidity in the system. According to Nielsen’s recent research data, consumption growth in rural market is
double the rate of urban markets. CAGL’s majority of rural customers catering to essential business activities. It’s strong business
model and customer engagements would somewhat mitigate the risks in the long run.
CAGL has observed more than ~50% of correction in its stock price performance from its peak levels of Feb’20 due COVID-19
pandemic. This sharp reduction in stock price and its strong fundamentals provides a great opportunity to invest in the stock at
these levels. Historic profitability trend, overall loan book growth and its quality are amongst key indicators making CAGL a top
microfinance institution to serve the underserved/unserved while substituting informal lending with formal. India’s 70mn
households are still unserved/unbanked with India’s poverty levels at 22% and it is expected to increase as lockdown has resulted in
loss of livelihood and pushed millions into poverty, resulting in increased scope of microfinance business with a vigilant approach.
Contiguous district approach of expansion, customer centric approach and merger with MMFL shows a positive momentum.
Resumption in ~70% of overall collections were in line with management expectations since Jun’20 and it expects more than 90% of
collections by Sept’20. Stable liquidity would support gradual recovery in disbursements towards existing customers. At CMP of INR
554, CAGL is trading at a multiple of 2.9x of book value of INR 185.5/share. Full recovery in business operations is expected in the
next financial year. Accordingly, we assign P/ABV multiple of 2.8x to FY22E standalone adjusted book value of INR 244/share to
arrive at target price of INR 684/share and initiate coverage on the company with BUY rating.
Research Associate
S. No. Particulars Page No.
1 Company Overview 5
2 Investment Rationale
a) Leading NBFC-MFI with strong rural penetration through group lending 7
b) Resilient asset quality performance; focus on geographic expansion to ease concentrated risk 8
c) Strong profitability indicators with potent performance 9
d) Synergies from merger with Madura Micro Finance Ltd 10
3 Adequate funding Source and Liquidity Management 12
4 Scope of Microfinance Industry in India 13
a) Industry Overview 14
5 Valuation 18
a) Peer Comparison Analysis 19
b) COVID-19 Impact 20
6 Appendix
Exhibit 36: Fund Holdings 21
Exhibit 37: Board of Directors and Management 21
Exhibit 38: Asset Products in detail 22
Exhibit 39: Asset Classification and provisioning norms 22
Exhibit 40: Consolidated Financials 23
Research Associate

1. Company Overview
CreditAccess Grameen Limited (CAGL- formerly known as Grameen Koota Financial Services Pvt.
Ltd.) has incorporated in 2007, transferred its micro finance activities from NGO to a registered
Non-Banking Financial Company (NBFC) and reclassified into regulated Non-Banking Financial
Company – Micro Finance Institutions (NBFC-MFI) entity by Reserve Bank of India (RBI) in 2013.
The NGO was founded in May 1999 by a project under the T. Muniswamappa Trust (TMT) in South
Bangalore (Grameen Trust, Bangladesh; provided seed capital funding to TMT). It has replicated
the group lending methodology of Bangladesh based Grameen Bank. Offering affordable credit
to poor and low income households, primarily women from rural areas along with customer
centricity approach would lead to further strengthening of financial system in rural India. With
80% of Shareholding by CreditAccess Asia N. V. has helped the institution to raise its customers
and overcome the poverty.
CA Grameen has been followed group lending mechanism (JLG) with formed centres (called
‘Kendras’); which helps gathering enough evidences about borrowings and borrower’s overall
income through group discussions. The group consists of people staying in same rural areas
(within radius of ~500m) and known to each other. CAGL has shown 53% growth in GLP at 5 year
CAGR by FY20 to INR 99 bn. Group lending is of 95% of total GLP and retail finance is individual
loans which forms 5% of CAGL’s GLP.
Exhibit 1: Gross Loan Portfolio (INR cr.) 9,896

CAGL has shown 53% growth 499
in GLP at 5 year CAGR by 7,159
FY20 to INR 99 bn.
325
4,974
3,075 51
9,397
2,539 1 6,834
4,923
2,539 3,075
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Retail Group Lending
Source: KRChoksey Research, Company reports
Geographic spread
CAGL has unique diversification across districts with less than 3% portfolio per district. it focuses
on deep rural penetration led by contiguous expansion and significant scale, which helps in risk
reduction. There is no single district which has more than 5% of total gross loan portfolio.
CAGL has further entered into Gujarat, Rajasthan, UP, Bihar and Jharkhand during 1HFY20 after
Major portion, ~ 59.2% of
evaluating districts using its contiguous approach. The management expects Karnataka and
Gross Loan Portfolio was
Maharashtra share of total GLP to reduce in next 3 years with business growth in other regions.
from Southern India. Slowly
entering into Northern India As on Mar’20, CAGL has extended its network across 230 districts of 13 states and an Union
(Rajasthan & Uttar Pradesh) Territory (UT) with 929 branches. It expects new branches to operate and perform within 3 years
with district based strategy. of commencement of operations.
Exhibit 2: State-wise GLP Exhibit 3: Region-wise GLP

North
Other 0.3%
MP 5.1% Central
East
9.2% 11.7%
1.7%
TN
11.2% KA
47.5%
West
27.3% South
MH 59.2%
27.0%

Research Associate

Exhibit
1000 4: Key Operational trend 929 12000
10824 10000
800 670
516 8064 8000
600
393 6306 6000
400 298 4952
3835 131 164 157 196 230 4000
200 96 132
74 2000
0 0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Branches Kendras Districts Employees
Exhibit 5: CAGL follows customer centric business model
Diversified Flexible
Product Repayment
Portfolio Options
High Touch Model: Weekly

Customer
Connect with customers a
Centricity
key element to its business.
Industry’s
High Touch
Lower
Model
Interest Rates
• Diversified product portfolio based on customers’ life cycle supported high level of
customers’ satisfaction. Customized products with flexible repayment options are unique
features adopted by CAGL.
• Loan/Field Officers’ weekly connect with borrowers is a key element of their business model
(High Touch Model).
• Borrowing limit per borrower, ticket size, disbursements and repayment schedule can differ
within a group of borrowers. Also, customers can have multiple loans within credit limit.
• As on Mar’20, Weekly repayment option was opted by ~55% of total customers after the
assessment of their daily cash flows; 39% and 6.1% of total customers were opted for
85% of borrower retention
fortnightly and monthly repayment options, respectively. In Retail Finance, 100% of customers
rate and 35-40% of total
repays on monthly basis.
borrowers are unique to
CAGL. • Also, 35-40% of total customers unique to CA Grameen and +75% customers were with CAGL
for more than a year. It’s borrower retention rate was at 85%.
Exhibit 6: Client Vintage with CAGL- FY20 Exhibit 7: Clients’ Age Profile- FY20
>9 Yrs >=56 18-25
6-9 Yrs 3.6% 2.5% 6.5%
5.8%
51-55
<1 Yr 9.9%
26-30
25.6% 14.3%
3-6 Yrs
23.4%
41-50
30.1% 31-35
18.6%
1-3 Yrs 36-40

41.6% 18.2%

Research Associate

2. Investment Rationale
a) Leading NBFC-MFI with strong rural penetration through group lending
We expect AUM to grow by at least 25% at 5 year CAGR on the back of existing expansion
strategy and merger with MMFL. Strong rural penetration with 82% of borrowers from rural areas
Lowest Interest rate and no presence in Metros pushes faster normalcy in current situation. In FY20, ~40-45% of
amongst NBFC-MFIs (18%-21%) customers were new to credit in line with its objective to serve the unserved. Recent trend in
in Dec’19 quarter. limited supply by NBFCs, Industry’s lowest interest rates (~19.75% in Q1FY21), flexible repayment
options (weekly, fortnightly or monthly) would attract more customers.
• 85% of Income Generation Loans (IGL) were purely based on business investments and
income enhancement activities. Other loans were launched to make CAGL ‘one stop shop’ for
all its customers.
• Retail finance launched in 2016 for enhanced credit needs of customers. These are individual
loans which are higher than MFI loans. Long term customers (with +3 cycle loans) can avail
Supporting RBI’s Financial these loans based on good repayment capacity as well as good cash flows in business. In
Inclusion Plan with ~40-45% FY20, group lending borrowers were at 8.9 lakhs who have completed 3 years.
of its customers are new to CAGL believes in ‘people and process business’ to maintain a good relationship with its
credit. employees and customers. Thus, it is more focused towards its Human Resource Management
(HRM) where employees’ loyalty is at core. It has a low employee attrition rate as compared with
the industry. CAGL’s 90% of its employees are hired fresh from rural as it doesn’t believe in hiring
from other MFINs. Out of which ~40-45% of employees are from families of active customers. It
trains their employees themselves and build their own culture to maintain quality in business.
Exhibit 8: Product wise % of GLP Exhibit 9: Borrower - Market Share

0.1% 0.1% 0.1% 0.3% 0.2% 0.0%
3.3% 4.5% 4.9% 5.4% 5.1% 5.0%
9.0% 6.8% 6.1% 6.9% 2.0%
14.7% 22% 19% 18% 18%
1.3% 3.5% 4.0% 2.8% 8.0% 26%
4.3%
77.6% 85.0% 84.7% 84.3% 85.0% 85.0% 81% 82% 82%

74% 78%
Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Emergency Retail
Urban Rural
Family Welfare Home Improvement
IGL
Exhibit 10: Disbursements trend Exhibit 11: Productivity Ratios FY20
10,389 GLP (INR cr)
8,221
11.5
6,082
3300
3,349 3,403
7.0 1.4 1042 407

0.7 98
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 GLP/Branch GLP/Loan Officer Clients/Branch Clients/Loan
Officer
Disbursements (INR Crore)
Group lending Retail Group lending Retail
Source: Company reports, KRChoksey Research
Research Associate

b) Resilient asset quality performance; focus on geographic expansion to ease
concentrated risk
CAGL’s high touch model (weekly meetings with customers for 30-45 minutes) helped in
Collection efficiency was at improved collection efficiency. Customers’ weekly connect with experienced field officers is a
98.0% as on Mar’20. key element to its business. As on Mar’20, GNPA/NNPA reported at 1.57%/0.0%, respectively with
2.86% provisioning on account of COVID-19 impact in FY21.
Asset quality impacted in Q2 & Q3FY20 due to external interference in districts of coastal
Karnataka and floods in certain districts of Northern Karnataka and South Maharashtra in
Q2FY20. ~75-80% of customers from districts of Northern Karnataka and South Maharashtra
could regularize their accounts so far and efforts are taken to collect from rest of the customers.
Furthermore, CAGL along with MFIN, AKMi, Sa-Dhan and state administration had managed the
situation which was created to hold repayments and seek loan waivers.
During and post Moratorium, CAGL follows district wise contiguous expansion strategy which maintains its business growth as
the management expects well as asset quality.
collections to resume as • Prior to acquisition of new customers, there are compulsory home visits and a mandate
estimated based on the check with credit bureau which maintains all micro finance customers data.
survey. • For new customer credit, average ticket size starts with ~INR 25,000 – 30,000 for income
generation loans only.
• Post disbursement, CAGL checks on loan utilisation and repayment track record for at least
a year.
Exhibit 12: Capital Adequacy & Asset Quality
40.0% 35.3% 1.8%
35.0% 29.7% 29.6% 1.6% 1.6%
28.1% 1.4%
30.0% 23.6% 1.2%
25.0% 21.5% 1.0%
20.0% 0.8% 0.8%
15.0% 0.6% 0.6%
10.0% 0.1% 0.4%
0.1% 0.2%
5.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0% 0.0%
0.0% -0.2%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
CRAR (%) GNPA (%) NNPA (%)

• The management follows an effective risk control mechanism where portfolio per district
should not be more than 1% of total portfolio. Gradual expansion in India’s north and east
regions has been initiated in 1HFY20 with new branches to diversify further and bring down
As on Mar’20, 179 districts of portfolio per district.
230 holds <0.5% of GLP v/s Exhibit 13: District wise Exposure (% of GLP)
105 districts of 157 as on 4 1
9
Mar’19. 4 30 22
29 16 19
1 1 4 17
Almost 90% of districts 3 3 29
29 29 19
operates with less than 1% of 20 19
GLP 163 180 179
103 105 118
Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20

> 5% 3% - 5% 1% - 3% 0.5% - 1% < 0.5%
Exhibit 14: District in terms of GLP (% of Total GLP)
FY20 71% 29% 17% 12% 4%
FY19 68% 32% 20% 13% 5%
Other Top 10 Top 5 Top 3 Top 1

Research Associate

c) Strong profitability indicators with potent performance
CAGL has been performed well with robust growth in both revenue and profit after tax at 5 year
CAGR by 49%/46% at INR 11.1 bn/3.3 bn, respectively. In Q4FY20, net revenue reported at INR 2.9
bn (26% YoY, -5% QoQ) and Profit after tax reported at INR 22.8 cr (-70% YoY, -79% QoQ). NIM
reported at 12.1% for FY20 with cost of borrowings reduced to 9.9% from 10.4% in FY19.
Exhibit 15: Profitability ratios- Revenue, Net Profit, ROE and ROA
1200.0 25.0%
19.8% 20.7%
1000.0 20.0%
16.7% 16.9%
800.0
14.0% 15.0%
600.0 12.9%
1,112
867 5.2% 10.0%
400.0 3.6%
5.0%
3.5% 3.7% 518 5.0%
200.0 385 2.5% 328
154 49 259
84 75 212 322
0.0 0.0%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Revenue (INR Cr) Net Profit (INR Cr) ROA ROE

Exhibit 16: Spread Analysis

Cost of funds are expected to
maintain at same levels with 24.1% 23.3% 22.5%
stable credit rating and 20.4% 20.0%
diverse source of funding. 19.4%
14.3% 13.7% 12.9% 11.5% 12.7% 12.1%
10.8% 11.4% 11.4% 11.5% 10.4% 9.9%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Portfolio Yield Cost of borrowings NIM

Proper utilization of human capital while maintaining employees’ work-life balance is well taken
care of. CAGL follows 5-day a week policy and several welfare schemes are implemented to make
company an employee friendly organization. Strong distribution network and high touch
With incremental growth in customer engagement model has helped the company to serve evolving needs of households.
GLP and stable operating Besides this, digital ecosystem boosts innovation in new delivery methods and customer
structure, management experience has made more efficient.
expects opex/GLP to improve
CAGL has been improved its operational efficiency as observed in its historical performance
further up to 4.5% in next 4-5
trend. Cost to income ratio and Opex/GLP ratio stood at 36.6%/4.9% as against 33.9%/5% in FY19,
years.
respectively.
Exhibit 17: Operational Efficiency

46.0% 44.3% 41.5% 39.2%
33.9% 36.6%
6.9% 6.4% 5.4% 5.1% 5.0% 4.9%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Opex/GLP Ratio Cost/Income Ratio
Research Associate

d) Synergies from merger with Madura Micro Finance Ltd
Madura Micro Finance Ltd (MMFL), Chennai based organization was started by promoters of
Bank of Madura and it started its operations in 2006. It is a large NBFC-MFI serving 1.2 mn women
borrowers with INR 21 bn GLP & it covers +25000 villages in 7 states by the end of Dec’19.
History of Madura Micro Finance
In FY 2006, MMFL formed as NBFC where it started direct lending to Self Help Groups (SHGs). In
Tamil Nadu, SHG portfolio raised with effective cost management by FY12. It could even perform
in Andhra Pradesh microfinance crisis. In FY13-FY15, It has expanded in Karnataka and
Maharashtra backed by growth expected from product and process innovations using data
management system. In FY16-FY17, it further expanded in Kerala. GLP stood at INR 5 bn in FY16
and became an important NBFC-MFI in the industry after overpowering the event of
demonetisation. In FY18-FY19, the expansion continues with new states of Bihar and Odisha.
Strong & long tenured Exhibit 18: Historical Performance of Madura Micro Finance Ltd
management has helped the
Financial Indicators (INR crores) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
MMFL improve its
operational efficiency Operating Income 46.6 67.2 106.2 140.8 228.6 280.4
keeping growth intact. Pre-provision Profit 25.4 33.3 56.8 82.2 147.9 169.6
Pre tax Profit 21.7 27.8 48.5 61.8 114.5 106.4
Profit after tax 14.0 18.0 29.2 39.2 80.7 79.7
AUM (INR bn) 3.7 5.5 8.2 11.8 19.6 21.0
Net NPA % (PAR> 90 days) 0.1% 0.1% 0.0% 0.0% 0.9% 1.6%
Average Yield 25.1% 24.4% 23.8% 22.5% 22.7% 21.9%
Average cost of funds 15.1% 14.7% 13.9% 13.0% 11.6% 11.6%
Net Interest Margin 10.0% 9.8% 10.0% 9.5% 13.1% 11.9%
Cost to income (%) 45.4% 50.5% 46.5% 41.6% 33.7% 39.5%
OPEX/GLP 6.6% 6.8% 6.7% 6.2% 5.1% 5.5%
ROE 16.3% 19.0% 21.1% 19.1% 30.9% 21.9%
ROA 3.4% 3.6% 3.8% 3.6% 5.0% 3.6%
CAR (%) 23.6% 20.1% 27.0% 25.7% 19.4% 23.0%
Source: Company data, KRChoksey Research
Merger Synergies
CAGL has completed its first step of merger with MMFL in Mar’20 where it purchased 76% of
stake after the payment of INR 661 cr. It will bring synergies to business profitability and
improved ROE.
• 96% of rural existence and cultural similarity in business operations would benefit CAGL to
further expand its operations and deepen its presence.
• Merger with MMFL has multiplied its loan portfolio of Tamil Nadu by 2.5 which reduced the
MMFL has a strong existence portfolio concentration of Karnataka from 53% in FY19 to 40% in FY20.
in Southern India with ~70%
of portfolio from Tamil Exhibit 19: Area-wise borrowers Exhibit 20: State wise GLP (%)
Nadu. 3.6% 8.3%
18% 14% 7.6% 7.6%
10.4%
19.9%
25.8%
24.1%
82% 86%
52.6%
40.1%
CAGL FY19 CAGL+MMFL FY20 CAGL FY19 CAGL+MMFL FY20
Urban Rural Others MP TN MH KA

Note: KA – Karnataka, MH- Maharashtra, TN-Tamil Nadu, MP- Madhya Pradesh
Research Associate

• Madura Micro Finance Ltd has 449 branches operated by 3,623 employees who would drive
CAGL’s business operations with available skilled resources to build strong presence and
operational efficiencies. As on Mar’20, it has 1,393 branches spread across 14 states and 1 UT
with total employees of 14,496 (CAGL+MMFL).
Exhibit 21: Merger Synergies (GLP, Branches, Loan Officers, Employees & Borrowers)
As on Mar’20, CAGL’s Branches
GLP (INR cr) 1,393
standalone GLP(INR 99 bn) 11,996
and consolidated GLP (INR 464
2,100
120 bn) were highest
amongst all NBFC-MFIs.
9,896 929
7,159 670

MMFL CAGL MMFL CAGL
Loan officers Employees

9,688 14,496
1,972
3,672
7,716
5,768 10,824
8,064

MMFL CAGL MMFL CAGL
Borrowers ('000)
4,055 • Madura’s borrowers would be merged in
1,215 CAGL’s overall borrower base of 2.9 mn
consolidating at 4.1 mn.
2,470 2,905
CAGL FY19 CAGL+MMFL FY20

MMFL CAGL
Exhibit 22: Consolidated Financial Estimates

Key Financials (INR cr) FY 2020 FY 2021E FY 2022E FY 2023E
Net Interest Income 1094.7 1713.5 1915.4 2318.1
PPOP 714.0 1110.0 1225.1 1481.5
PTP 461.5 655.0 849.5 1114.6
PAT 335.4 490.1 635.7 834.0
MMFL’s attractive ROE & PAT Growth (%) - 46.1% 29.7% 31.2%
ROA for FY 20 of 21.9% & 3.6%, EPS 23.4 34.1 44.2 58.0
respectively, would Advances 11098.9 12985.7 15647.8 18855.6
contribute to CAGL’s overall Advances Growth (%) - 17.0% 20.5% 20.5%
growth. Borrowings 9539.7 11256.8 13429.4 16115.3
Borrowings Growth (%) - 18.0% 19.3% 20.0%
ROE 12.1% 16.2% 17.6% 19.1%
ROA 2.7% 3.6% 3.9% 4.3%
BVPS 193.9 228.3 273.3 332.2
P/E 22.8x 15.6x 12.0x 9.2x
P/BV 2.7x 2.3x 1.9x 1.6x
Research Associate

3. Adequate Funding Sources and Liquidity Management
Exhibit 23: Liability mix - Institution /Instrument wise (%)
0% 0%
8% 3% 5%
22% 13% 11%
20% 28%
21% 13%
17% 22%
8% 18%
31% 24%
63% 59% 61% 62%

41% 49%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Securitization/buyouts NCDs/Foreign sources/CCD NBFCs and other Fis Banks

Exhibit 24: Liability mix- Tenure wise CAGL’s funding strength:

• CAGL’s funding sources are diverse and it is
focusing on increasing its share from foreign
funds to 30-40% by FY21. As it focuses on long
<= 2 term funding with a mix of domestic and
years foreign sources.
13.20% • The promoter, CreditAccess Asia’s holds 79%
of stake in CreditAccess Asia who has a
3-6 years diverse source of network globally.
Focus on 30-40% of Foreign 44% • Positive Asset Liability management with
funding by FY21E. lower average maturity of assets reducing the
2 years liquidity risk.
39%
• In COVID-19 situation, CAGL would wait for
momentum of collections to decide on the
level of disbursement. By the end of July 2020,
it would be easy to understand the exact
2-3 years situation and further growth in the industry.
3% • The situation is expected to get back to
normalcy given the larger share of customers
base from rural areas which has less impact
from COVID-19.
Exhibit 25: Asset Liability Management

27.3
25.3
21.5
19.4 19 18.6 18.4
16 16.1 16
13.6 14.1
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Average Maturity of Assets (in months) Average Maturity of Liabilities (in months)
Research Associate

4. Scope of Microfinance Industry in India
India’s ~70% of population is rural. RBI initiated a plan for financial inclusion in 2001 and in 2014
government’s Jan Dhan Yojana was launched with the same objective. This led to increase in
banked population up to 80%. However, the same could not support growth of credit or other
financial services in rural areas due to lack of adequate banking system proximity where NBFC-
MFIs are playing an important role with its strong business model. This is a journey from informal
to formal credit structure with the main objective of supporting people to borrow money at
lower interest rates and improve their standard of living.
Untapped market,
government’s support and Exhibit 26: State-wise Poverty Levels
increasing level of awareness
amongst people are key • According to Harsh Shrivastava
drivers to the MFI industry. Top 10 States w/ Rural Rural (MFIN CEO), as on Dec’19 the
Poverty
highest poverty population population industry has reached 30% of the
levels
levels (mn) (%) potential households in microfinance
market.
Chhattisgarh 19.6 77% 40%
• Around 70 mn households from Low
Jharkhand 25.01 76% 37% Income Groups (LIGs) are still
unbanked/ unserved.
Manipur 1.7 61% 37%
Arunachal • 22% of India’s population is still living
1.1 77% 35% in poverty.
Pradesh
Bihar 92 89% 34% • 82.5% of GLP constituted by top 10
states where Tamil Nadu is with
Orissa 34.9 83% 33% highest GLP of INR 309bn followed
Assam 26.8 86% 32% by West Bengal, Bihar, Karnataka,
Maharashtra, Uttar Pradesh, Madhya
Madhya Pradesh 52.5 72% 32% Pradesh, Orissa, Assam and Kerala.
Uttar Pradesh 155.3 78% 29% • 36.3% of borrowers concentration is
Karnataka 37.5 61% 21% in East and North east region
followed by 28% in southern region.
CAGL’s exposure • The industry serves 5.64 cr unique
to other states customers as on Dec’19.
West Bengal 62.2 68% 20% • Digitalization plays an eminent role
in providing quality service to
Maharashtra 61.5 55% 17%
customers. Financial education
Gujarat 34.7 57% 17% would be delivered conveniently.
Rajasthan 51.4 75% 15% Currently, 90% of credit
disbursements are cashless in the
Tamil Nadu 37.2 52% 11%
industry.
Pondicherry 0.4 32% 10%
• Awareness about importance of
Kerala 17.5 52% 7%
good credit history amongst
Goa 0.5 38% 5% microfinance borrowers plays a key
Source: RBI, Census 2011; states highlighted in bold has CAGL’s role in collections. Overall collection
existence efficiency stood at 98.5% in Dec’19.
Research Associate

a) Industry Overview
• Microfinance Industry has shown a robust growth in last few years. According to Q3 FY20
MFIN report, NBFC –MFIs and Banks were top contributors to this sector providing credit of
31% and 40% of total micro financing loans, respectively. Microfinance industry’s gross loan
portfolio stood at INR 1,793.1 bn in FY 2018-19 (30% YoY) and in Q3 FY20 witnessed a YoY
NBFC-MFI’s GLP growth has growth of 29% to INR 2,113 bn.
contracted 7% YoY due to • The industry is growing at average rate of 30% - 35% annually and has reported growth of 3
Bharat Financial Inclusion year CAGR at 25%, as awareness has increased amongst the people from rural and semi urban
Ltd (BFIL) merger with areas.
IndusInd Bank Ltd.
• NBFC-MFIs asset portfolio has contracted annually by 7% from INR 715.1 bn to 661.6 bn due to
Bharat Financial Inclusion Ltd (BFIL) merger with IndusInd Bank Ltd. CAGL is one of the large
MFIs (> 5 bn GLP) with INR 88.7 bn of GLP at the end of Dec’19.
Exhibit 27: Indian Micro Finance Industry – outstanding loan portfolio
Portfolio (INR bn)

2,113
24.0
1,701 215.9
16.4
372.8
189.1
Indian MFI industry has
grown by 29% YoY at INR 2.1 256.8
tn of GLP. 838.8
523.7
715.1 661.6
Dec'18 Dec'19
NBFC-MFIs Banks SFB NBFC Others
Source: MFIN, KRChoksey Research
Key highlights of NBFC-MFIs for Q3 FY20

During the quarter, overall debt funding received by NBFC-MFIs worth INR 109.6 bn along with
securitization of INR 80.1 bn. Banks and other financial institutions contributes 62%/38% of
average debt funding across these NBFC-MFIs, respectively. 68% of total funding received from
CAGL has disbursed loan banks to large MFIs.
amount worth INR 29.8 bn 67 lakh loans (18% YoY) disbursed by MFIs worth INR 192.8 bn (36% YoY). CAGL has disbursed
(69% YoY) which is 16% of loan amount worth INR 29.8 bn (69% YoY) which is ~16% of total MFIs’ disbursements. Disclosed
total MFIs’ disbursements. numbers by 80% of MFI members have reported that 90% of loan amount disbursed through
cashless mode which has improved from 83% of Q3 FY19.
The concerns over portfolio quality is growing with downtrend in PAR analysis which shows
PAR>30 is at 1.56%, PAR>60 is at 0.89% and PAR>90 is at 0.53%.
overall branch network of NBFC-MFIs spread across 32 states and union territories with 13,844
branches (27% YoY) and 1,12,616 employee base (31% YoY). There were ~63% of loan officers (31%
YoY, 70,445) handling door-step credit service to low income clients.
It has reported 3.1 cr clients (31% YoY) with 3.7 cr loan accounts (32% YoY).
Average loan outstanding per account is at INR 18,162 (10% YoY).
Research Associate

Exhibit 28: Productivity Ratios – CAGL, MMFL and NBFC-MFIs
GLP/Branch (INR cr) GLP/Loan Officer (INR cr)
1.3
9.6 9.1 9.8 1.2 1.2 1.2
1.1 1.1
1 1
0.9
6.5 6.5 0.7
5.21 4.9 4.8 0.6
4.1 4.3 4.8 4.9
0.4
CAGL-Retail CAGL- Group MMFL NBFC-MFIs CAGL-Retail CAGL- Group MMFL NBFC-MFIs
Lending Lending
Q3FY19 Q2FY20 Q3FY20 Q3FY19 Q2FY20 Q3FY20

Source: MFIN, Company reports, KRChoksey Research
Borrowers/Branch Borrowers/Loan Officer
3,664 3,151 680 636

3,140 2,645 595
2,642 2,617 2,244
2,233 435 401 392 442 450 439
2,178
908 950
535 89 96
51
CAGL-Retail CAGL- Group MMFL NBFC-MFIs CAGL-Retail CAGL- Group MMFL NBFC-MFIs
Lending Lending
Q3FY19 Q2FY20 Q3FY20 Q3FY19 Q2FY20 Q3FY20
Exhibit 29: State wise MFIs statistics in terms of number of MFIs and GLP YoY growth rate (%) for Q3 FY20
GLP YoY growth rate (%) – Q3 FY20
>200% >200%
188% 195%
148%
109% 115%
104%
87% 86% 84% 83%
65% 69%
60% 54% 57%
45% 46% 51%
40% 41% 39%
33% 38% 35% 32% 24% 18%
BH JH OR MP MH UP CG RJ WB GJ AS HR KA TN PB PY TR UT KL ME GA HP DL SK TS AP CH JK MI AR
Research Associate

Number of MFIs - Q3 FY20
35
28 27
26 26 26 25
23 23
21
19 18 18 18
13 12
11 11 10
7 6 6
4 4 4
2 2 2 2 1 1 1
BH JH OR MP MH UP CG RJ WB GJ AS HR KA TN PB PY TR UT KL ME GA HP DL SK TS AP CH JK MI AN AR MN

Note: BH- Bihar, JH- Jharkhand, OR- Odisha, MP-Madhya Pradesh, MH-Maharashtra, UP-Uttar Pradesh, CG- Chandigarh, RJ-Rajasthan, WB-West Bengal, GJ-Gujarat, AS-
Assam, HR-Haryana, KA-Karnataka, TN-Tamil Nadu, PB-Punjab, PY-Pondicherry, TR-Tripura, UT- Uttarakhand, KL- Kerala, ME- Meghalaya, GA- Goa, HP- Himachal Pradesh,
DL- Delhi, SK- Sikkim, TS- Telangana, AP- Andhra Pradesh, CH- Chattisgarh, JK- Jammu & Kashmir, MI- Mizoram, AN- Andaman & Nicobar Islands, AR- Arunachal Pradesh,
MN- Manipur.
Exhibit 30: Portfolio at Risk for top 15 states in terms of GLP – Q3 FY20
9.2%
PAR>30
3.2% 3.8%
3.1% 2.5% 2.7% 3.0%
2.2% 1.9% 1.8%
1.4% 1.0% 1.5% 1.5%
0.5%
BH KA TN MH OR UP MP WB RJ AS KL JH CG PB HR
PAR>90
3.2%
2.0% 2.1% 2.2%

1.9%
1.4% 1.4% 1.4%
1.0% 1.0% 0.9% 1.0% 1.0%
0.8%
0.3%
PAR>180
1.5% 1.6% 1.7%

1.3%
0.8% 0.8% 1.0% 1.0%
0.5% 0.6% 0.5% 0.6% 0.5%
0.2% 0.3%
Research Associate

Exhibit 31: Micro Banking Asset Portfolio of CreditAccess vs MFIN industry vs NBFC-MFI
Micro Banking Asset Portfolio (INR bn)

2500.0 16%
2,113
14%
2000.0 1,793
12%
13.4%
1500.0 1,378 10%
10.5%
8.4% 8%
957 1,093
1000.0 8.2%
As on Dec’19, CAGL’s market 6.6% 6%
606 682 4.2% 662
share is at 13.4% of overall 3.6% 4.0%
465 4%
NBFC-MFIs and 4.2% of MFIN 500.0 2.7% 301 2.8%
industry. 2%
25 31 50 72 89
0.0 0%
2016 2017 2018 2019 Q3 FY20
CreditAccess Grameen MFIN Industry NBFC-MFIs
% share of MFIN Industry % share of NBFC-MFIs
Announcement of Code of Responsible Lending (CRL)

In Sept’19, ‘code of responsible lending’ has announced for the micro credit industry. It is a step
Code of Responsible Lending towards securing the interest of micro credit institutions as well as customers.
(CRL) keeping credit limit up
The important mandate in CRL is that not more than 2 micro credit entities can lend to a client
to INR 1.25 lakh per customer
at the same time of their active loans. Also, prior to sanctioning of any loan, a micro credit
to protect the interest of
institution should ensure that total indebtedness should not exceed INR 1.25 lakh per customer.
customers.
This will ensure that customers’ interests are protected by making providers responsible
through internalizing these practices.
Atma Nirbhar Package support to NBFC-MFIs
The Government of India and RBI has taken many initiatives for MFIs through this package and
monetary policy to boost liquidity amid COVID-19 situation. It includes-
• In the first phase of announcement, emergency working capital facility worth INR 3 lakh
crore, subordinate debt assistance worth INR 20K crore and equity infusion worth INR 50K
crore for MSMEs was included. Also, Special liquidity scheme for NBFC/HFC/MFIs kept worth
INR 30K crore. Partial credit guarantee scheme 2.0 for liabilities of NBFC and MFIs worth
INR 45K crore.
• RBI announced TLTRO & LTRO 2 to ease liquidity in the system. On 17th April 2020, LTRO.2
announced for NBFC-MFIs of INR 50000 crore to invest in debt instruments in order to
manage the liquidity. RBI is open for increasing this amount beyond INR 500bn.
Monetary Policy accommodative stance with rate cut up to 4% to boost demand
Atma Nirbhar Package and
RBI’s accommodative Demonetisation, GST implementation and NBFC & PSBs NPA crisis, global geopolitical tensions
monetary policy to support etc. are some of the issues which have impacted banking and financial services industry and
liquidity in the system. Indian economy. PSBs recapitalization, corporate tax cut, Central Bank’s recent rate cuts are
amongst few measures which would help revive Indian economy with available excess liquidity
in the market. Microfinance industry will also get benefited with the transfer of rate cuts to
rural customers which will make the loans available at affordable rates. Atma Nirbhar Abhiyan
would further motivate people from rural areas amid COVID-19. Most unemployed population
and migrants may require funds to start their own ventures to bring their life to normalcy.
RBI’s rate cut announcements were to support the entire banking sector in dealing with
liquidity crisis amid COVID-19. Transfer of rate cuts to other financial institutions and end
customers would help economy. Credit demand is expected to grow with excess liquidity in the
market, however, banks and NBFCs would carry conservative lending approach. Thus, post
lockdown slow and steady economic recovery is expected which would last in the long run.
17
Research Associate

5. Valuation
Global financial markets and overall economy is fighting threat against COVID-19 pandemic which
started in China followed by number of other countries too. Pre-COVID-19, economic
environment has experienced slowdown due to previous major shocks in the Banking and
financial services sector with concerns over bad loans and low private consumption during CY19.
Current economic crisis led by COVID-19 is a concern for all investors to gauge the amount of
business loss due to unexpected halt in business operations. Indian economy has been struggling
to perform after the various reforms announced by Government of India. According to RBI
Governor, India’s lesser exposure to global economy would limit the contraction in growth; as
only a fifth of exports of services and goods are of total economy. Considering the stress
situation, financial institutions and banks are expected to see a great impact on their asset
quality. However, CAGL’s strong asset quality, unique business model and weekly connects with
Considering the stress borrowers would mitigate the risks to some extent in the long run. Additionally, RBI’s loan
situation, financial moratorium policy and INR 20 lakh crore package under Atma Nirbhar Bharat would help sustain
institutions and banks are the growth of these institutions in future.. CAGL’s majority of rural customers catering to
expected to see a great essential business activities during the lockdown.
impact on their asset quality.
Persistent past performance is likely to continue in the future with existing strengths and
However, CAGL’s strong
potential to perform. CAGL is operating with the main purpose of serving the
asset quality, a unique
unserved/underserved. India’s 70mn households are still unserved/unbanked with India’s poverty
business model and weekly
levels at 22% and these levels tend to grow as lockdown has resulted in loss of livelihood and
connects with borrowers
pushed millions into poverty. It offers larger opportunity in microfinance with a vigilant
would mitigate the risks to
approach. Unique expansion, customer centricity and merger with MMFL are amongst key
some extent in the long run.
drivers in CAGL’s growth in the long run. However, current dampened economy has left with
remarkable effects on CAGL’s share price which has impacted from highest P/BV multiple of
5.4x to current 2.9x. We expect full recovery in business operations in the next financial year.
We believe it is a great opportunity to invest in the stock at these attractive levels. We assign
2.8x to our FY22E standalone adjusted book value of INR 244/share to arrive at a target price of
INR 684/share and initiate coverage on CAGL with our BUY recommendation.
Exhibit 32: 1 Year Rolling P/E
1200.0
1000.0
800.0
600.0
400.0
200.0
0.0
Mar-19
May-18
Jul-18
Nov-18
Jan-19
Nov-19
May-19
Jul-19
Sep-19
Sep-18
Mar-20
Jul-20
Jan-20
May-20
Price 20x 25x 30x 35x 40x 45x
Research Associate

a) Peer Comparison
CAGL has shown better performance in the last few years despite economic slowdown amid demonetization and NBFC crisis where
few other players were also emerged as strong performers in this sector. In the below table, we have compared CAGL’s
performance with leading players in the industry.
Exhibit 33: Peer Comparison FY20 – Listed companies
Micro
PAT
Mkt Cap Revenue GLP finance Tier 1 NNPA Cost to
Particulars P/E P/BV ROAA ROAE (INR
(INR mn) (INR mn) (INR mn) portfolio (%) (%) Income
mn)
(INR mn)
CreditAccess Grameen Ltd 79,750 23.9x 3.4x 3.60% 12.90% 11,117 3,275 98,960 98,960 22.3% 0.00% 36.6%
Spandana Sphoorty Financial 40,937 9.6x 1.7x 6.30% 15.60% 14,695 3,515 68,290 68,290 52.9% 0.07% 19.9%
Satin Creditcare Network 4,304 2.1x 0.3x 2.20% 11.90% 15,030 1,550 81,740 81,740 30.5% 0.60% 49.9%
Equitas Holdings Ltd. 18,798 8.1x 0.7x 1.40% 9.80% 17,777 2,436 1,37,472 36,162 22.4% 0.90% 66.0%
Sundaram Finance Ltd 1,39,358 18.7x 2.4x 1.90% 11.90% 47,027 7,753 2,80,447 2,99,360 13.2% 1.65% 75.7%
Bajaj Finance Ltd 19,86,822 27.3x 6.4x 4.10% 20.20% 1,69,130 52,640 14,13,761 1,32,437 21.3% 0.61% 33.5%
Average 14.9x 2.5x
Ujjivan Small Finance Bank 62,475 24.6x 1.6x 1.49% 9.96% 30,260 3,500 1,41,530 1,09,330 28.0% 0.20% 67.0%
Bandhan Bank 5,68,187 15.1x 3.3x 4.08% 22.91% 78,730 30,240 7,18,460 4,61,892 25.2% 0.58% 30.8%
IndusInd Bank 3,61,209 8.2x 1.2x 1.52% 14.54% 1,90,110 44,580 20,67,832 2,42,320 14.7% 0.91% 43.4%
RBL Bank 86,257 15.3x 0.8x 0.59% 5.53% 55,400 5,060 5,80,191 64,450 15.3% 2.05% 50.3%
IDFC First Bank 1,50,601 - 0.7x - - 73,575 -28,642 8,55,954 66,870 13.3% 0.94% 73.7%
DCB bank 24,929 6.6x 0.7x 0.91% 10.34% 16,560 3,379 2,53,453 27,880 13.9% 1.16% 54.5%
State Bank of India 16,80,504 8.1x 0.7x 0.49% 8.14% 10,44,620 1,09,070 2,32,52,896 20,99,970 11.6% 13.78% 52.5%
Average 14.5x 1.5x
Source: Company data, Factset and KRChoksey Research
*Standalone figures for CreditAccess Grameen Ltd
Exhibit 34: Peer Comparison Dec 2019 – Top 10 MFIs
Avg loan
GLP per
amount
Disburse Loan loan GLP per Clients
Top 10 GLP (INR Market outstand Employe Clients
ments disburse States Districts Branches officer branch per
MFIs cr) share ing per es (Lakhs)
(INR Cr) d (INR (INR cr) branch
account
lakh)
(INR)
CAGL 8,872 13% 2,977 17,285 14,78,036 14 230 928 10,465 28 117 9.56 2,985
Satin 6,390 9% 1,904 16,716 5,71,416 22 371 1,110 11,184 32 91 5.76 2,876
Spandana 5,748 9% 1,873 20,342 5,34,353 17 276 950 7,334 24 106 6.05 2,524
Asirvad 5,022 7% 1,115 14,610 5,18,954 23 315 1,042 5,909 21 151 4.82 2,054
Muthoot 4,849 7% 1,021 22,141 2,61,251 17 243 640 8,053 18 98 7.58 2,885
Arohan 4,646 7% 998 17,087 3,38,313 16 225 688 5,819 22 124 6.75 3,262
Annapurna 3,652 5% 979 21,097 2,65,784 17 283 706 5,488 17 113 5.17 2,418
Fusion 3,343 5% 919 18,283 3,21,942 18 278 571 5,380 18 96 5.85 3,166
Samasta 2,973 4% 852 18,246 2,90,947 17 233 565 5,781 14 84 5.26 2,452
Svatantra 2,158 3% 788 23,977 2,32,213 14 218 448 3,679 9 111 4.82 1,955
Source: Company data, Factset and KRChoksey Research
Research Associate

Exhibit 35: CAGL Standalone Financial Performance:
INR Crores FY 2018 FY 2019 FY 2020 FY 2021E FY 2022E FY 2023E
NII 506.0 801.6 1044.5 1232.8 1504.5 1877.3
PPOP 314.8 572.6 689.9 811.7 994.1 1262.5
PAT 212.5 321.8 327.5 352.1 506.1 670.2
EPS (INR) 20.7 23.1 22.8 24.5 35.2 46.6
BVPS (INR) 111.9 164.8 185.9 210.0 245.2 291.7
ABVPS (INR) 111.8 164.0 185.5 208.4 244.2 290.5
P/E (x) 18.6x 21.7x 14.8x 22.6x 15.8x 11.9x
P/ABV (x) 3.4x 3.1x 1.8x 2.7x 2.3x 1.9x
Key Risks and concerns

• Global economic slowdown: COVID-19 impact, climate change, US-China trade war, US-Iran
tensions and Brexit, were amongst few reasons for our weak global economic environment.
India-China tensions over borders may have some impact on overall Indian markets.
• Recently, due to COVID-19 there is an uncertainty about the duration to overcome such kind
of impact on overall economy and hence investors are expected to wait for the market
stability for long-term investment decisions.
b) COVID-19 Impact
• CAGL had maintained connect with its customers during lockdown. Audio messages were
sent in regional languages to build awareness. Employees maintained regular connect with
customers to support & strengthen relationship. During the lockdown, since 20th April, 74% of
branches opened with 1/3rd staff and later from 4th May, 98% of branches were operational
with ~90% staff. ~70% of GLP (CAGL+MMFL) is from green and orange zones and red zones
are operational from 8 June, 2020 with required social distancing norms.
• Moratorium: During lockdown, >80% of customers were engaged in essential activities.
According to CAGL survey, 70% of customers of has started the repayment from Jun’20 and
20% of customers would require another few weeks to start the transactions. ~10% of
Government is aiming customers may opt for extension of moratorium based on the COVID-19 and lockdown
towards phase wise situation. The management observed the collections in June’20 as per estimates.
resumption in activities.
CAGL has started its • ~70% of portfolio is in Green & Orange Zones. Presently, there is a significant relaxation for
collections and movement of people in all zones.
disbursements from 1st June
• CAGL has no exposure to migrant population in urban locations..
2020 except containment
zones. • Challenges during lockdown amid COVID-19 pandemic would take some time to normalize
the situation. During this period, essential services were primarily contributed by rural areas
as major impact seen in urban cities due to increase in COVID-19 cases. Government is aiming
towards phase wise resumption in activities. CAGL has started its collections and
disbursements from 1st June 2020 except containment zones.
• We believe CAGL has a strong ability to get back to normalcy post lockdown given 86% of its
overall portfolio is from rural where the production and consumption largely local. Post
COVID- 19, microfinance would initiate rural economic growth and revenue generation.
• Looking at the situation, the management has decided to provide top-up loans to existing
customers based on assessment of requirement with good credit history. However, a vigilant
methodology in this process would help MFIs reduce risk.
Research Associate

6. Appendix
Exhibit 36: Fund Holdings
Top Institutional holdings (as on June 2020) % of outstanding
Reliance Nippon Life Asset Management Ltd. (Invt Mgmt) 4.27%
ICICI Prudential Life Insurance Co. Ltd. (Invt Port) 1.24%
Eastspring Investments (Singapore) Ltd. 0.74%
Robeco Institutional Asset Management BV 0.69%
ICICI Prudential Asset Management Co. Ltd. 0.66%
Source: Factset
Exhibit 37: Board of Directors and Management

Board of Directors Designation Experience
Managing Director and Chief Executive +10 years with CAGL

UDAY KUMAR HEBBAR
Officer Total Experience +30 years
+9 years with CAGL

DIWAKAR B R Director – Finance and CFO
Total Experience +25 years
Joined CAGL in Jan 2020

GANESH NARAYANAN Chief Business Officer
+11 years with CAGL

GURURAJ K S RAO Chief Audit Officer
+8 years with CAGL

ANSHUL SHARAN Chief Risk Officer
+8 years with CAGL

GOPAL REDDY Business Head – Group Lending
+9 years with CAGL

ARUN KUMAR B Head – Information Technology
+2 years with CAGL

SUNDAR ARUMUGAM Head – Strategy and Innovation
+12 years with CAGL

SRIVATSA H N Business Head – Group Lending
+13 years with CAGL

NAGANANDA KUMAR K N Head - Centralized Operations
4 years with CAGL

VISHWANATH BHAT Head – Retail Finance
Head – Compliance, Legal & Company Joined CAGL in Dec 2019

M. J. MAHADEV PRAKASH
Secretary Total Experience +18 years
+2 years with CAGL

THRISHULI B Head – Human Resource
1 years with CAGL

NILESH DALVI Head-Investor Relations
+13 years with CAGL

HARIDARSHINI A Head – Operational Excellence
Source: Company reports
Research Associate

Exhibit 38: Asset Products in detail
Financial
Group Lending
Products
Income Generation Loans
Product Type Home Improvement Loans Emergency Loans Family Welfare Loans
(IGL)
To support business
To help customers with To support the family
enterprises and income To address their
water connections, toilet welfare depending on the
Purpose enhancement activities emergencies and short-
construction, or for purpose for which it is
like purchasing fixed term cash flow constraints
home extension projects required
assets
From INR 5,000 to INR From INR 1,000 to INR
Loan amount Up to INR 80,000 Up to INR 1,000
50,000 15,000
First IGL at 21% p.a
Interest rate* 18% p.a. 18% p.a. 18% p.a.
Second IGL at 19% p.a.
Tenure 1 to 2 years 1 to 4 years maximum of 3 months 6 months to 12 months
Financial
Retail Finance
Products
Grameen Udyog Grameen Savaari Grameen Suvidha Grameen Vaahan
Product Type Grameen Vikas Loan
Loan Loan Loan Loan
To meet customer's
captal requirements To meet higher To meet additional
in order to expand Vehicle (Two capital requirements need of business or To purchase small
Purpose
business or to wheeler) loan of business maintainance of commercial vehicles
purchase machinery expansion assets
or to keep inventory.
15% of sanctioned
Loan amount Up to INR 1,50,000 Up to INR 60,000 Up to INR 5,00,000 loan of Up to INR 4,00,000
Udyog/Savaari
Interest rate* 22% p.a. 22% p.a. 22% p.a. 20% p.a. 22% p.a.
Tenure 24 months 24 months 2 years to 5 years 6 months 2 years to 4 years
Financial
Distributor Products
Products
Product Type Life Insurance National Pension Scheme - Swavalamban
Products of Shriram LIC Ltd, Kotak Mahindra LIC Ltd,
Continued Investment product for customers to earn
Purpose DHFL Pramerica LIC Ltd, ICICI Prudential LIC Ltd, HDFC
a decent pension in the future
LIC Ltd
Exhibit 39: Asset Classification and provisioning norms

Revised
Asset Asset Provisionin
CAGL Policy CAGL Policy IND-AS RBI Norms
Classificatio IND-AS Classificatio RBI Norms g Norms
w.e.f. Q4
n n
FY19 Higher value among the
Standard Stage I following:
Stage I 0-15 days 0-30 days
Assets
0-90 days • 1% of on-book Loan Assets;
% of or
Stage II Exposure at ECL • [50% of aggregate overdue
Sub-
Default and Methodolog loan installments in respect
Stage II 16-60 days 31-90 days standard 91-180 days
write offs y of Sub-standard Loan
Assets
>270 days Assets; and 100% of
Stage III aggregate overdue loan
Stage III >60 days >90 days Loss Assets >180 days installments in respect of
Loss Loan Assets]
Research Associate

Exhibit 40: Financial Statements
PROFIT & LOSS ACCOUNT (INR Crores) FY 2018 FY 2019 FY 2020 FY 2021E FY 2022E FY 2023E
Interest income 859.7 1218.3 1617.2 2062.9 2721.4 3455.8
Interest expense 353.7 416.75 572.7 830.1 1216.9 1578.5
Net interest income 506.0 801.6 1044.5 1232.8 1504.5 1877.3
Non interest income 11.8 65.0 67.2 97.9 125.1 158.9
Operating income 517.9 866.6 1111.7 1330.7 1629.6 2036.2
Operating expense 203.1 294.0 406.6 519.0 635.6 773.8
PPOP 314.8 572.6 689.9 811.7 994.1 1262.5
Provisions -13.4 74.9 239.0 341.2 317.8 366.9
PBT 328.2 497.7 450.9 470.5 676.3 895.6
Tax expense 115.7 176.0 123.4 118.4 170.2 225.4
PAT 212.5 321.8 327.5 352.1 506.1 670.2
BALANCE SHEET (INR Crores) FY 2018 FY 2019 FY 2020 FY 2021E FY 2022E FY 2023E
SOURCES OF FUNDS
Share capital 128.4 143.6 144.0 144.0 144.0 144.0
Reserves & surplus 1309.1 2221.5 2525.1 2877.2 3383.2 4053.4
Shareholders' funds 1437.5 2365.1 2669.1 3021.2 3527.2 4197.4
Borrowings 3623.5 4866.6 7822.6 10623.0 13714.3 17856.1
Trade Payables 35.1 103.7 79.8 87.8 96.6 106.3
Other liabilities & provisions 17.6 21.8 90.2 87.0 112.2 120.0
TOTAL LIABILITIES & EQUITY 5113.6 7357.2 10661.7 13819.0 17450.4 22279.7
USES OF FUNDS
Cash and cash equivalent 143.1 615.6 580.4 1160.9 1393.1 1671.7
Investments 0.2 0.2 661.4 859.9 1031.8 1238.2
Advances 4895.5 6602.8 9172.6 11374.1 14445.1 18345.2
Fixed & other assets 62.2 138.6 247.1 424.2 580.4 1024.6
TOTAL ASSETS 5101.0 7357.2 10661.7 13819.0 17450.4 22279.7
ROA Tree FY 2018 FY 2019 FY 2020 FY 2021E FY 2022E FY 2023E

Interest income 859.7 1218.3 1617.2 2062.9 2721.4 3455.8
Net interest income 506.0 801.6 1044.5 1232.8 1504.5 1877.3
Operating income 517.9 866.6 1111.7 1330.7 1629.6 2036.2
Operating expense 203.1 294.0 406.6 519.0 635.6 773.8
PPOP 314.8 572.6 705.1 811.7 994.1 1262.5
Provisions -13.4 74.9 239.0 341.2 317.8 366.9
PBT 328.2 497.7 450.9 470.5 676.3 895.6
PAT 212.5 321.8 327.5 352.1 506.1 670.2
Average total assets (INR Bn) 4215.6 6229.1 9009.4 12240.3 15634.7 19865.1
Leverage (x) 3.5x 3.1x 4.0x 4.6x 4.9x 5.3x
RoE (%) 21% 17% 13% 12% 15% 17%
Research Associate

KEY RATIOS FY 2018 FY 2019 FY 2020 FY 2021E FY 2022E FY 2023E
Growth rates
Advances (%) 72.4% 34.9% 38.9% 24.0% 27.0% 27.0%
Deposits (%) na na na na na na
Borrowings (%) 34.9% 34.3% 60.7% 35.8% 29.1% 30.2%
Total assets (%) 53.2% 44.2% 44.9% 29.6% 26.3% 27.7%
NII (%) 46.3% 58.4% 30.3% 18.0% 22.0% 24.8%
Pre-provisioning profit (%) 39.8% 81.9% 20.5% 17.7% 22.5% 27.0%
PAT (%) 182.3% 51.4% 1.8% 7.5% 43.7% 32.4%
Balance sheet ratios
Advances/Total assets (%) 96.0% 89.7% 86.0% 82.3% 82.8% 82.3%
Leverage (x) 3.5x 3.1x 4.0x 4.6x 4.9x 5.3x
Operating efficiency
Cost/income (%) 39.2% 33.9% 36.6% 39.0% 39.0% 38.0%
Opex/ average assets (%) 4.8% 4.7% 4.5% 4.2% 4.1% 3.9%
Opex/total interest earning assets (%) 5.0% 4.8% 4.8% 4.7% 4.6% 4.4%
Profitability
NIM (%) 13.2% 14.0% 12.9% 11.9% 11.6% 11.4%
ROAA (%) 5.0% 5.2% 3.6% 2.9% 3.2% 3.4%
ROAE (%) 20.7% 16.9% 13.0% 12.4% 15.5% 17.4%
Asset quality
Gross NPA (%) 0.8% 0.6% 1.6% 2.0% 1.8% 1.5%
Net NPA (%) 0.0% 0.2% 0.1% 0.2% 0.1% 0.1%
Per share data / Valuation
EPS (INR) 20.7 23.1 22.8 24.5 35.2 46.6
BV (INR) 111.9 164.8 185.9 210.0 245.2 291.7
ABV (INR) 111.8 164.0 185.5 208.4 244.2 290.5
P/E (x) 18.6x 21.7x 14.8x 22.6x 15.8x 11.9x
P/BV (x) 3.4x 3.0x 1.8x 2.6x 2.3x 1.9x
P/ABV (x) 3.4x 3.1x 1.8x 2.7x 2.3x 1.9x

Research Associate

Rating Legend (Expected over a 12-month period)
Our Rating Upside
Buy More than 15%
Accumulate 5% – 15%
Hold 0 – 5%
Reduce -5% – 0
Sell Less than – 5%
ANALYST CERTIFICATION:
We, Priyanka Baliga [M.Com, BMS (Finance)], research associate and Parvati Rai (MBA-Finance, M.com), Head Research, author and the name subscribed to this report, hereby certify that all of
the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & Conditions and other disclosures:

KRChoksey Shares and Securities Pvt. Ltd. (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited and Bombay Stock Exchange Limited.
KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014.
We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.
KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers.
The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential
and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in
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This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness
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KRChoksey Shares and Securities Pvt. Ltd.
Registered Office:
1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.
Phone: +91-22-6633 5000; Fax: +91-22-6633 8060.
Corporate Office:
ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053.
Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.
Research Associate

KRChoksey CreditAccess Grameen LTD Report

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CreditAccess Grameen Ltd.

Initiating Coverage 20th July, 2020

MARKET DATA Investment Rationale:

SHARE HOLDING PATTERN (%)

Particulars Jun 20 Mar 20 Dec 19

CreditAccess Grameen Ltd.

CreditAccess Grameen Ltd.

S. No. Particulars Page No.

a) Leading NBFC-MFI with strong rural penetration through group lending 7

c) Strong profitability indicators with potent performance 9

d) Synergies from merger with Madura Micro Finance Ltd 10

3 Adequate funding Source and Liquidity Management 12

4 Scope of Microfinance Industry in India 13

a) Peer Comparison Analysis 19

Exhibit 36: Fund Holdings 21

Exhibit 37: Board of Directors and Management 21

Exhibit 38: Asset Products in detail 22

Exhibit 39: Asset Classification and provisioning norms 22

Exhibit 40: Consolidated Financials 23

CreditAccess Grameen Ltd.

Exhibit 1: Gross Loan Portfolio (INR cr.) 9,896

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Exhibit 2: State-wise GLP Exhibit 3: Region-wise GLP

Source: KRChoksey Research, Company reports

CreditAccess Grameen Ltd.

Exhibit 5: CAGL follows customer centric business model

High Touch Model: Weekly

Source: KRChoksey Research, Company reports

1-3 Yrs 36-40

Source: KRChoksey Research, Company reports

CreditAccess Grameen Ltd.

Exhibit 8: Product wise % of GLP Exhibit 9: Borrower - Market Share

77.6% 85.0% 84.7% 84.3% 85.0% 85.0% 81% 82% 82%

Exhibit 10: Disbursements trend Exhibit 11: Productivity Ratios FY20

10,389 GLP (INR cr)

7.0 1.4 1042 407

CreditAccess Grameen Ltd.

CRAR (%) GNPA (%) NNPA (%)

Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20

FY20 71% 29% 17% 12% 4%

FY19 68% 32% 20% 13% 5%

Other Top 10 Top 5 Top 3 Top 1

CreditAccess Grameen Ltd.

Revenue (INR Cr) Net Profit (INR Cr) ROA ROE

Exhibit 16: Spread Analysis

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Portfolio Yield Cost of borrowings NIM

Exhibit 17: Operational Efficiency

6.9% 6.4% 5.4% 5.1% 5.0% 4.9%

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

CreditAccess Grameen Ltd.

CAGL FY19 CAGL+MMFL FY20 CAGL FY19 CAGL+MMFL FY20

Urban Rural Others MP TN MH KA

Source: KRChoksey Research, Company reports

CreditAccess Grameen Ltd.

CAGL FY19 CAGL+MMFL FY20 CAGL FY19 CAGL+MMFL FY20

Loan officers Employees

CAGL FY19 CAGL+MMFL FY20 CAGL FY19 CAGL+MMFL FY20

CAGL FY19 CAGL+MMFL FY20

Source: Company data, KRChoksey Research

Exhibit 22: Consolidated Financial Estimates

CreditAccess Grameen Ltd.

63% 59% 61% 62%