Of Mutual Funds Off Loading Small Caps, IPO of Credit Access Grameen and Key Stocks in Action Today

Thu, 9 Aug Pre-Open

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The BSE Smallcap index is down 14% since the beginning of 2018. The data analysis by a reputed organization of 1,584 stocks having a market capitalization of more than Rs 100 crore, showed that the median fall for these 1,584 stocks from their 52 week high is 34%. The magnitude of the correction is eye-popping.

This fall is partly contributed by the big mutual funds shifting their allocation to large-caps. In the quarter ended June 2018, mutual fund ownership in large-caps rose 1.2% from the levels they held in the September quarter.

Further, general elections are due next year. As smallcaps tend to be more volatile during such period, funds are reducing their risk exposure by buying more large-caps.

If the trend continues going forward, there could be more pain in the offering for smallcaps.

Should You Apply to this IPO?

As I write, the initial public offer of Credit Access Grameen received a tepid response with just 3% subscription on day one. The price brand for the IPO is in the range of Rs 418 to Rs 422 per share.

A quick glance at CreditAccess Grameen's key operating metrics reveals that the company is a strong financial play. It has grown its revenues at a rate of 43% CAGR over 5 years from FY14-FY18. This is in line with a CAGR of 57.5% in Gross AUM between FY14 and FY18.

Accordingly, profits followed and jumped multifold to Rs 1,246 million in FY18. Net profit margins also improved to 14.2% in the latest year, although it is still down from the peak of 17.8% in FY16. This increase was largely driven by volume growth in its loans as a result of expansion in branch network and customer base, in line with its contiguous district-based expansion strategy.

The company's Return on Assets (ROA) of 2.4% doesn't top the industry but is better than several peers. Bharat Financial Inclusion and Bandhan Bank have ROAs of 2.8% & 4.1%, respectively, while that of Ujjivan & Equitas stands at 0.1% & 0.3%, respectively.

As compared to its peers, the company's post-issue price to book value (P/BV) stands at 2.9 times at the upper price band of the IPO. This is fairly greater than its rivals Equitas Finance Holdings and Ujjivan Financial Services.

Considering all these factors-should you apply to this offer? Read our detailed IPO analysis of CreditAccess Grameen Ltd (requires subscription) to find out.

Key Stocks in Action Today

The stocks of AIA Engineering, Apar Industries, Capacite, Cera Sanitaryware, GNFC, ICRA, Jet Airways, MRF, Page Industries, Skipper are expected to be in the news today as they declare their results for the quarter ended June 2018.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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