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Our Take:

The microfinance industry was hit hard due to the pandemic. They had faced many challenges as the collection efficiency dropped drastically, but with gradual pickup in economic activities things are improving. CreditAccess MNC parentage with long standing experience in micro- lending across Asia has enabled strong liquidity profile and adequate capital buffer. Promoter has provided capital funding to CAG from time to time and provides access to potential fundraising opportunities in the debt capital markets. CreditAccess has been one of the best capitalized and fastest growing MFI across industry, registering an advances growth of CAGR 52% from FY15-20.With the strong balance sheet position the company has opportunity to increase its market share as well as scale up its presence in existing and newer geographies. As CreditAccess continues to penetrate deeper in these new geographies and with branches maturing, we think the growth tailwind will remain strong over the medium term. CreditAccess has huge opportunity lying ahead because of low penetration. It has unique positioning and has one of the lowest lending rates & one of the best operating cost efficiencies. All this has helped company in becoming the leader.

The company posted loss in Q3FY21 because of higher provisioning but now the management stated that significant provisioning requirement has been completed and going forward they will only have business as usual provisioning. Disbursements growth has reached pre Covid level.

We had issued Initiating Report on CreditAccess on 28th August, 2020 and recommended Buy at LTP and add on dips to Rs.586-590 band, for base case target of Rs.733 and bull case target of Rs.801 over the next two quarters. The stock achieved our Bull case target of Rs.801 yielding return of 22% on 27 Nov 2020. Then again we have recommended the stock as a Diwali Picks for Rs.797 Target, which was achieved on 27 Nov 2020 yielding return of 27.7%. Both the links are:

View & Valuation:

With disbursements picking up to pre covid levels and expansion into newer geographies we believe that the company could manage to post an AUM growth of ~22% over FY20-23E. We have envisaged 30% CAGR for Net Interest Income (NII) and 38% CAGR for Net profit over same time frame. We build Loan Loss Provisions (LLPs) of 3.4% over FY21-23E. We feel that investors can buy CreditAccess Buy at 618 (1.85xFY23E ABV) and add on dips to Rs.566 (1.7xFY23E ABV) for the base case fair value of Rs. 685 (2.05xFY23E ABV) and the base case fair value of Rs. 733 (2.2xFY23E ABV) over next 2 Quarters.

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