CreditAccess Grameen NCD Tranche II - August 23 issue review - (Apply)

•    This is the 2nd debt issue from the company since November 2022.
•    CAGL is a leading MFI with diverse activities and services in the finance sector.
•    It has posted growth in its bottom lines for the reported periods.
•    The company is offering lucrative coupon rates.
•    Investors looking for a steady income may consider investing in this debt issue. 

ABOUT COMPANY:
CAGL is a leading Indian micro-finance institution headquartered in Bengaluru, focused on providing joint liability group loans and micro-loans primarily to women customers predominantly in rural areas in India. According to MFIN India, it is the largest NBFC- MFI in India in terms of the gross loan portfolio as of March 2023. The company offers a diverse suite of lending products that cater to the critical needs of customers throughout their life cycle and includes income generation, healthcare, education, festival celebration, home improvement, water, and sanitation. CAGL believes that its customer-centric business model, a wide range of product offerings, as well as well-designed product delivery and collection systems, have enabled it to achieve high customer retention rates and low credit costs.
It focuses predominantly on customers in Rural areas in India, who largely lack access to the formal banking sector and present a latent opportunity for offering micro-loans. 

Its products are built on a deep understanding of the requirements of customers (especially customers from rural areas) developed over years and the flexibility of its products (in terms of ticket sizes, end-uses, and repayment options) and the manner of their delivery, which are key factors that differentiate CAGL from competitors and generates customer loyalty.

The company also provides retail finance products to existing individual customers who have demonstrated high entrepreneurial capacity, have graduated from JLG (Joint Liability Group) model and are capable of borrowing larger loans in their individual capacity, against collateral. These loans are mainly offered to customers to establish a new enterprise or expand their existing business, meet their working capital requirements, and purchase inventories, machinery, two-wheelers, etc. It also provides supplementary loans as additional short-term credit facilities to customers who require working capital for business, livestock maintenance, home improvement needs, or for any other consumption purposes. CAGL has also started providing mortgage loans to non-customers in the geographies it operates through Retail Finance branches. It has followed a strategy of contiguous district-based expansion across regions. 

The company has followed a strategy of contiguous district-based expansion across regions. As of June 30, 2023, it has presence in 353 districts in the 14 states (Karnataka, Maharashtra, Madhya Pradesh, Tamil Nadu, Kerala, Odisha, Chhattisgarh, Goa, Bihar, Jharkhand, Gujarat, Rajasthan, Uttar Pradesh and West Bengal) and one union territory (Puducherry) in India through 1,826 branches and 17,391 employees, serving an active customer base of 44.2 lakhs, as of June 30, 2023. Its operations are well-diversified at the district level, with no single district contributing more than 3% to Gross AUM as of June 30, 2023. Further, out of a total of 353 districts where it had branches as of June 30, 2023, around 93% of these districts individually represent less than 1% of Gross AUM.

ISSUE DETAILS:
The company is coming out with a maiden debt issue of Secured, Redeemable Non-Convertible Debentures having a face value of Rs. 1000 each. The company mulls mobilizing Rs. 400 cr. as a base amount and has a green shoe option to retain oversubscription to the tune of Rs. 600 cr. thus, making an overall size of the issue worth Rs. 1000 cr. under The Tranche II issue. It has a shelf limit of Rs. 1500 cr. The issue opens for subscription on August 24, 2023, and will close on or before September 06, 2023. Minimum application is to be made for 10 NCDs and in multiple of 1 NCD thereon, thereafter. Post allotment, NCDs will be listed on BSE and NSE. CAGL is spending Rs. 15.79 cr. for this Tranche I issue. From the net proceeds of the issue, CAGL will use at least 75% for repayment of existing borrowings with interest and onward landing while a maximum of up to 25% for general corporate purposes. 

The issue is solely lead managed by A K Capital Services Ltd., KFin Technologies Ltd. is the registrar while Catalyst Trusteeship Ltd. is the Debenture Trustee for this debt offering. 

This offer has a tenor of 24 months, 33 months, 50 months, and 60 months. Its coupon rates range from 9.10% to 9.70% and interest payment options are monthly or cumulative, as per the selection of the series applied for. The company has allocated 25% for Institutions, 30% for Non-institutions, 20% for HNIs, and 25% for Retail investors. 

CREDIT RATINGS:
This debt issue is rated IND AA - / Stable by India Ratings and Research Pvt. Ltd. These ratings are not a recommendation to buy, sell or hold securities and investors should make their own decisions. These ratings are subjected to a periodic review during which they may be raised, affirmed, lowered, withdrawn, or placed on Rating Watch at any time on the basis of factors such as new information. The rating should be evaluated independently of any other rating. The Credit Rating Agency's website will have the latest information on all its outstanding ratings. In case of any change in credit ratings till the listing of NCDs, the Company will inform the investors through public notices/ advertisements.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, CAGL has (on a consolidated basis) posted a total income/net profit of Rs. 1705.48 cr. / Rs. 335.49 cr. (FY20), Rs. 2466.07 cr. / Rs. 131.40 cr. (FY21), and Rs. 2750.13 cr. / Rs. 353.07 cr. (FY22), and Rs. 3550.79 cr. / Rs. 826.06 cr. (FY23). 

As of March 31, 2023, its paid-up equity capital of Rs. 158.91 cr. is supported by free reserves of Rs. 4948.06 cr. As of the same date, its debt-equity ratio stood at 3.19, which will rise to 3.39 post this issue.