Overview:
- Largest listed microfinance company with a vintage of 25 years
- Gross Non-Performing assets (GNPA) at 1.29% and a Capital adequacy at 23.56%
- Based on the Grameen model of Mohammad Yunus, with 99.99% lending to women
- High return on equity of 17.97% and a relatively lower debt-equity ratio of 3.19
- Structure of lending being largely unsecured, this does pose as a credit risk.
Latest issue’s details
Opens on August 24, 2023 and closes on September 6, 2023
Issue size is Rs. 400 crore with another 600cr as a green shoe option.
Eight options for cashflows mainly interest being paid monthly or on a cumulative basis.
Minimum application during the primary phase is Rs. 10,000 i.e. ten units of face value Rs.1000 each
Issue will be listed on the exchanges to provide liquidity
YTM being 9.48% to 10.13%
Detailed analysis:
One can be confident of a well calibrated/prudent approach from the management knowing that 66.77% of the equity share capital is owned by the promoter Credit Access India BV
A significant portion of the portfolio comprises microfinance loans to clients with below-average credit risk profiles and lack of access to formal credit. In spite of this, CAGL based on the Grameen model, is disbursing largely unsecured loans while keeping GNPA% low.
This is possible due to group-based loans where members ensure each other’s credit discipline.
CAGL has consistently maintained its Capital Adequacy Ratio, with percentages of 23.56%, 22.80%, and 26.80% from 2021, 2022, and 2023, respectively.
With a AA- rating from India ratings and a A1+ (Stable outlook) from CRISIL, CAGL follows a relatively safer NPA recognition process at 60 on non-repayment as compared to the industry standard of 90 days.
CAGL wont face an Asset Liability management issue as its average receivables are at 22 months while its average payments are at 18 months.
Regional concentration in CAGL’s loan portfolio remains high – with top 3 states (Karnataka, Tamil Nadu and Maharashtra) accounting for over 77% of the book size as on December 31, 2022.
One could feel content after seeing the high Return on equity number but this is a new occurrence for CAGL. Its Financial year 2022’s and 21’s Return on Equity was at 9% and 4% respectively.
Conclusion
Due to having a unique business model as compared to it’s peers. This investment will provide low internal correlation in the high yielding part of a debt portfolio.
With strong fundamentals and business’ financials, CAGL can be a part of a high yielding portion of a debt portfolio. One must keep vigilance, as predicting the creditworthiness of this company in the long term can be difficult.
Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
advise prudence while taking any investment decision"