Creditaccess Grameen Ltd

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

additional provisions INR 82.9 cr on account of COVID-19 impact in FY21). CAGL has

Apr-19

Dec-18 Dec-19

Apr-20 Aug-19 Aug-18 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 79.91 79.95 80.01 FIIs 6.16 5.59 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

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.

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

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

Exhibit1000 4: Key Operational trend 929 12000 10824 800 670 10000 8000 600 516 8064 393 6000 6306 400 298 4952 196 230 4000 3835 131 132 164 157 200 74 96 2000 0 0 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Branches Kendras Districts Employees Source: KRChoksey Research, Company reports

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

Source: KRChoksey Research, Company reports • 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

>=56 18-25 >9 Yrs 2.5% 6.5% 6-9 Yrs 3.6% 5.8% 51-55

9.9% <1 Yr 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%

Source: KRChoksey Research, Company reports Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 7 CreditAccess Grameen Ltd. 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% 6.8% 2.0% 14.7% 9.0% 6.1% 6.9% 19% 18% 18% 1.3% 3.5% 4.0% 2.8% 8.0% 26% 22% 4.3%

85.0% 84.7% 84.3% 85.0% 85.0% 77.6% 74% 78% 81% 82% 82%

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

Source: KRChoksey Research, Company reports

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

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% 1.6% 1.6% 28.1% 29.7% 29.6% 30.0% 1.4% 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 (%)

Source: KRChoksey Research, Company reports

• 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) 1 105 districts of 157 as on 4 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 Source: KRChoksey Research, Company reports Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 9 CreditAccess Grameen Ltd. 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% 20.7% 1000.0 19.8% 20.0% 16.7% 16.9% 800.0 14.0% 15.0% 12.9% 600.0 1,112 10.0% 400.0 867 5.2% 3.6% 5.0% 3.5% 518 200.0 3.7% 385 2.5% 5.0% 259 328 154 49 322 0.0 84 75 212 0.0%

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

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

Source: KRChoksey Research, Company reports

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% 19.4% diverse source of funding. 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

Source: KRChoksey Research, Company reports

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

Source: KRChoksey Research, Company reports

Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 10 CreditAccess Grameen Ltd. 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% 10.4% 7.6% 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

Source: KRChoksey Research, Company reports Note: KA – Karnataka, MH- Maharashtra, TN-Tamil Nadu, MP- Madhya Pradesh Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 11 CreditAccess Grameen Ltd. • 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 GLP (INR cr) Branches 1,393 standalone GLP(INR 99 bn) 11,996 and consolidated GLP (INR 2,100 464 120 bn) were highest amongst all NBFC-MFIs.

9,896 929 7,159 670

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

Loan officers Employees

9,688 14,496

1,972 3,672

7,716 10,824 5,768 8,064

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

Source: Company data, KRChoksey Research 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 Source: Company data, KRChoksey Research Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 12 CreditAccess Grameen Ltd. 3. Adequate Funding Sources and Liquidity Management Exhibit 23: Liability mix - Institution /Instrument wise (%) 0% 0% 3% 5% 8% 13% 20% 28% 22% 11% 21% 13% 22% 8% 18% 17% 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

Source: KRChoksey Research, Company reports

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. Source: KRChoksey Research, Company reports

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)

Source: KRChoksey Research, Company reports

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 Top 10 States w/ Rural Rural drivers to the MFI industry. Poverty (MFIN CEO), as on Dec’19 the highest poverty population population levels industry has reached 30% of the 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% Pradesh in poverty.

• 82.5% of GLP constituted by top 10 Bihar 92 89% 34% states where Tamil Nadu is with

Orissa 34.9 83% 33% highest GLP of INR 309bn followed

by West Bengal, Bihar, Karnataka, Assam 26.8 86% 32% 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.

India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 14

CreditAccess Grameen Ltd.

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).

India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 15 CreditAccess Grameen Ltd.

Exhibit 28: Productivity Ratios – CAGL, MMFL and NBFC-MFIs

GLP/Branch (INR cr) GLP/Loan Officer (INR cr)

1.3 1.2 1.2 1.2 9.6 9.8 1.1 1.1 9.1 1 1 0.9 6.5 6.5 0.7 5.21 0.6 4.9 4.8 4.3 4.8 4.9 4.1 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 2,244 435 442 450 439 2,178 2,233 401 392 908 950 535 51 89 96

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

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%

115% 109% 104% 87% 86% 84% 83% 69% 60% 65% 54% 51% 57% 40% 45% 41% 46% 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

Source: MFIN, Company reports, KRChoksey Research

Number of MFIs - Q3 FY20

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

Source: MFIN, Company reports, KRChoksey Research 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

3.8% 3.2% 3.1% 3.0% 2.5% 2.2% 2.7% 1.4% 1.5% 1.5% 1.9% 1.8% 0.5% 1.0%

BH KA TN MH OR UP MP WB RJ AS KL JH CG PB HR

PAR>90 3.2% 2.2% 2.0% 1.9% 2.1% 1.4% 1.4% 1.4% 1.0% 1.0% 0.8% 0.9% 1.0% 1.0% 0.3%

BH KA TN MH OR UP MP WB RJ AS KL JH CG PB HR

PAR>180

1.6% 1.7% 1.3% 1.5% 0.8% 0.8% 1.0% 1.0% 0.5% 0.6% 0.5% 0.6% 0.5% 0.2% 0.3%

BH KA TN MH OR UP MP WB RJ AS KL JH CG PB HR

Source: MFIN, Company reports, KRChoksey Research

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

CreditAccess Grameen MFIN Industry NBFC-MFIs

% share of MFIN Industry % share of NBFC-MFIs Source: MFIN, Company reports, KRChoksey Research 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.

th • RBI announced TLTRO & LTRO 2 to ease liquidity in the system. On 17 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 Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 18 CreditAccess Grameen Ltd. 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

Jul-19

Jul-18

Jul-20

Jan-19

Jan-20

Sep-19

Sep-18

Mar-19

Nov-19

Nov-18

May-18 May-19

Mar-20 May-20 Price 20x 25x 30x 35x 40x 45x

Source: Company data, KRChoksey Research

Head Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Research Associate Thomson Reuters, Factset and Capital IQ Priyanka Baliga, [email protected], +91-22-6696 5408 India Equity Institutional Research II SalesInitiating Note Coverage II 20th July, 2020 Page 19 CreditAccess Grameen Ltd. 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

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

Source: KRChoksey Research, Company reports

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 th customers to support & strengthen relationship. During the lockdown, since 20 April, 74% of rd th branches opened with 1/3 staff and later from 4 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.

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 Total Experience +21 years +11 years with CAGL GURURAJ K S RAO Chief Audit Officer Total Experience +24 years +8 years with CAGL ANSHUL SHARAN Chief Risk Officer Total Experience +15 years +8 years with CAGL GOPAL REDDY Business Head – Group Lending Total Experience +21 years +9 years with CAGL ARUN KUMAR B Head – Information Technology Total Experience +15 years +2 years with CAGL SUNDAR ARUMUGAM Head – Strategy and Innovation Total Experience +20 years

+12 years with CAGL SRIVATSA H N Business Head – Group Lending Total Experience +17 years +13 years with CAGL NAGANANDA KUMAR K N Head - Centralized Operations Total Experience +20 years 4 years with CAGL VISHWANATH BHAT Head – Retail Finance Total Experience +19 years 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 Total Experience +23 years

1 years with CAGL NILESH DALVI Head-Investor Relations Total Experience +13 years

+13 years with CAGL HARIDARSHINI A Head – Operational Excellence Total Experience +15 years Source: Company reports

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

Source: Company reports

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 0-90 days • Assets 1% of on-book Loan Assets; % of or Exposure at ECL • [50% of aggregate overdue Sub- Stage II 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] Source: Company reports

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

Source: Company data, KRChoksey Research

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

Source: Company data, KRChoksey Research 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% Source: Company data, KRChoksey Research

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

Source: Company data, KRChoksey Research

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 any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

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 guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services.

KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months.

KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report.

It is confirmed that, Priyanka Baliga [M.Com, BMS (Finance)], research associate and Parvati Rai (MBA-Finance, M.com), Head Research, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions.

KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst.

It is confirmed that, Priyanka Baliga [M.Com, BMS (Finance)], research associate and Parvati Rai (MBA-Finance, M.com), Head Research, do not serve as an officer, director or employee of the companies mentioned in the report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform them of and to observe such restriction.

Please send your feedback to [email protected] Visit us at www.krchoksey.com 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.