ICRA has revised the long-term rating outstanding on the Rs.2,500.00 crore bank facilities, the Rs.887.00 crore NCD programme and the Rs.22.00 crore subordinated debt programme of CreditAccess Grameen Limited (CAGL or the company) to [ICRA]A+ (pronounced ICRA A plus) from [ICRA]A (pronounced ICRA A). The outlook on the long term rating has been revised to Stable from Positive. ICRA has also reaffirmed the short-term rating of [ICRA]A1+ (pronounced ICRA A one plus) outstanding on the Rs.200.00 crore commercial paper programme of the company.
The rating upgrade takes into account successful completion of CAGL's initial public offering (IPO) in August 2018 resulting in a strengthened capitalization profile; and sustained improvement in the company's operating performance which was driven by portfolio growth. The company raised fresh equity of Rs.630.0 crore through IPO which in ICRA's opinion would improve, the company's gearing to about 1.9x (on a managed basis) as in Aug-2018 and allow CAGL to pursue growth opportunities while maintaining a comfortable risk adjusted capital structure over the medium term. CAGL is expected to keep its leverage under control (around 4.5x times) going forward. CAGL has reported steady improvement in pre-provision profit driven by enhanced operating efficiencies. The company has a diversified funding profile, with funding relationship with close to 50 lenders; the above along with the favourable asset liability profile provides comfort from a liquidity perspective.
The assigned rating continues to factor in CAGL's established track record in the microfinance industry, its experienced senior management team and the company's efficient risk management and monitoring systems. Following the additional provisioning attributed to demonetization related delinquencies, the company's profitability was impacted during FY2017 (RoA3 of 2.3% in FY2017 as compared to 3.6% in FY2016); however, the same improved during FY2018 to 2.8% supported by lower credit costs.
At present, CAGL has presence in nine states viz, Karnataka, Maharashtra, Tamil Nadu, Madhya Pradesh, Odisha, Kerala, Goa, Puducherry and Chattisgarh; with Karnataka contributing to around 58% as on June 30, 2018. The ratings also take into account the company's monoline business and risks arising out of marginal profile of borrowers, unsecured nature of lending, and other risks associated with microfinance business. Going forward, the company's ability to maintain healthy asset quality indicators and capitalization as business expands would be key from a rating perspective.