It was an eventful week and one saw plenty of action. On Thursday markets crashed while the very next day on Friday there was a very strong rally. On both days the BSESENSEX saw a net movement more than 350 points. The BSESENSEX ended the week with gains of 219.31 points or 0.58% to close at 37,556.16 points. NIFTY was up 82.45 points or 0.73% to close at 11.360.80 points.
RBI raised interest rates on expected lines and repo rates now stand at 6.50%, up by 25 basis points. Similarly, reverse repo rates have been raised as well and stand at 6.25%. This was the second consecutive interest hike by 25 basis points. This back to back rate hike in subsequent meetings has happened after a very long time probably about five years.
Dow Jones gained 11.52 points or 0.05% to close at 25,462.58 points. Apple, the I-phone maker’s market capitalisation has hit the one trillion-dollar mark and becomes the first share to command such a market cap. In India the highest market capitalisation is that of Reliance Industries which was 108.71 billion dollars as of Friday’s closing.
In primary market news, shares of TCNS Clothing Company Limited listed on Monday and did not have a very good showing. Shares were down Rs 58.20 or 8.13% at Rs 657.80 against the issue price of Rs 716. They recovered during the week to close at Rs 668.40, down Rs 47.60 or 6.65%.
Shares of HDFC AMC would list on Monday the 6th of August. They had received overwhelming support and saw a new record level of retail participation as well. Shares were issued at Rs 1,100 and grey market premiums have been fluctuating between Rs 500-600 on a broad level.
Continuing with the primary market the issue from Credit Access Grameen Limited opens for subscription on Wednesday the 8th of August and closes on Friday the 10th of August. The issue consists of a fresh issue of Rs 630 crs and an offer for sale of 1.18 cr shares in a price band of Rs 418 to 422. At the top end of the band the company would raise Rs 1,131.18 crs. The EPS on a fully diluted basis is Rs 12.11 for the year ended March 2018. The PE multiple based on March 18 numbers would be 34.84 times.
The company is into the microfinance business and is present in 132 districts in 8 states and 1 union Territory (Puducherry). The company believes in a contiguous district model and this helps in better efficiencies. It also helps in better control and penetration. The total AUM (assets under management) is Rs 4,974 crs and it has been growing at a CAGR of over 57%. The company has infused capital through its multinational promoter Credit Access in 2018 and this would show results in the current financial year. The parent runs micro finance business in three other countries in Asia namely, Philippines, Indonesia and Vietnam. Incidentally the same company also had a stake in Equitas which it sold when the company went public.
There are two different kinds of micro finance companies these days with some going down the route of SFB or small finance bank and others which follow the simple micro finance route. Credit Access Grameen believes in the latter and has a rural focus. The company has 73% of its AUM in rural areas and has a current active customer base of 1.85 million customers. With fresh capital raised last year, and more through the listing, it is well poised to grow its AUM and the same would suffice for the next three years at the bare minimum. It also has a low gearing and that could be increased substantially to maximise its returns to shareholders. Considering the demand for money in rural India, one could well imagine the potential for this company. Looking at the differential model of the company, it stands out amongst the recent issues from its peers like Equitas, Ujjivan and AU Small Finance Bank.
The only one with which it is somewhat comparable is Bharat Financial Inclusion earlier known as SKS Micro Finance, and now taken over by Indus-Ind Bank. In
The fact that the parent is a multinational also helps in international funding which comes at better rates of interest and reduces the interest cost. Credit Access Grameen Limited lends at rates which are more than competitive compared to its peers. While attrition at the lowest level is there, it reduces significantly at higher levels. The company hires only freshers and no appointment is made at senior levels.
Looking at the opportunities this looks like a must subscribe issue.
Market momentum is currently on and will end only in euphoria. Investors in midcap and Smallcap stocks would do well to resist the temptation of buying into this rally. Use the same to exit and bide your time, which will come faster than you could imagine. Markets are technically poised to rise, till when only the Lord knows.
