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Customer Centricity – the key differentiator

Customer centricity is the basic tenet in design of products and processes. For instance, customers can choose their repayments frequency; weekly, bi-weekly or four-weekly, based on their cashflow while contracting the loan. The company have been banking on digital technologies along with introducing new products leading to increase in penetration, improving operational efficiencies and leading to better customer stickiness. Its customer centric model and wide range of products have enabled it to achieve high customer retention rates over the years. CreditAccess Grameen (CAG) have maintained a strong track record of financial performance over the years on account of customer retention, robust risk management and geographic expansion.

Funding – not a constraint

CAG promoter, CreditAccess Asia N.V., a multinational company specializing in MSE financing (micro and small enterprise financing), which is backed by institutional investors and has micro-lending experience through its subsidiaries in Asia. Promoter has provided capital funding to CAG from time to time and provides access to potential fundraising opportunities in the debt capital markets.

Outlook and Valuation

CAG is the largest microfinance in India with Gross loan portfolio of Rs.~11,200 cr. We believe CAG is best placed to grow and capture high market share on account of its strong capital base supported by strong parentage, focus on under penetrated rural areas and early stress recognition practice. Going forward, with pick up in loan growth and lower credit cost, we expect CAG to report ROA/ROE of 4.1%/19.1%. We initiate coverage with a BUY rating for target price of Rs.898 for 18-24 months.

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