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Business resiliency and agility reflect in FY22 financial performance

CA Grameen’s FY22 annual report provides detailed insights on how the company has ‘Stood the Test of Time and Trust’. Despite repetitive covid waves, it delivered >2% RoA and >9% RoE. Superior management execution also reflects in it completing the integration process of Madura Micro Finance Limited (MMFL) in Sep21 and by March’22, ~65% of MMFL’s AUM was serviced as per CA Grameen’s operating model. Its 99% cashless disbursements, digital sourcing of 0.6mn new customers, TAT 6,000 branch audits under new automated digital application are key highlights of its digital transformational journey during FY22.

CA Grameen articulated its vision of becoming the preferred financial partner of 10mn low-income households by 2025 and initiated measures to leapfrog this journey. Revised MFI regulation in the form of risk-based pricing, upward revision of household income and an increase in the limit of non-MFI loans to 25% (currently only 1%) would complement its vision. It has identified products under retail category – small ticket business loans, affordable housing loans, gold loans and 2-wheeler loans. It has already made the necessary technology investments to kick-start its retail journey and plans to run extensive pilots over the next few quarters before scaling up these products. Maintain BUY with revised TP of Rs1,300 (earlier Rs1,200) as we roll over BVPS to Sep-23 and value at 4x P/BV.

Cross-cycle RoA of >3% is an outcome of its customer and employee centric operating model.

CA Grameen’s business resiliency and agility reflects in it generating cross-cycle 3% RoA, despite encountering multiple challenges both on the business and economic front in the form of demonetisation, IL&FS default led credit / liquidity crisis, covid pandemic for two financial years, and regular incidences such as floods, cyclones, and third party interventions.

Geographical diversification to remain the key strategic goal.

CAGL has always believed in contiguous expansion rather than building pan-India network in the short term. In line with its diversification strategy, it has identified new growth states like Gujarat, UP, MP and Bihar and >70% new districts were added in these 4 states during FY22. More than 47% of the new borrower addition during FY22 came from outside of the top-3 states. To maintain its leadership position in KTK (24%) and scale business in the newly entered states, it opened 211 branches and added >1,000 employees in FY22, mainly outside the top-3 states.

Plan to scale up secured portfolio and diversify revenue stream by improving cross-sell of non-lending products.

By entering new phase of organisational journey and much larger balance sheet, CAGL has rightly articulated its strategy to strengthen balance sheet by shifting loan mix in favour of secured products which currently contribute <1% to total AUM. Further, it now plans to shift focus from only borrower to the entire household of borrower to cross-sell / up-sell and most importantly diversify revenue stream by improving non-lending revenue. While it aims to diversify product portfolio and scale secured portfolio, it highlighted core MFI lending would continue to remain the centre of all strategy. Incremental focus would be on improving product per customer, which currently stands at 1.6x (standalone), and is predominantly driven by non-lending products.

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