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CreditAccess Grameen Q1FY22 results were impacted on account of lower NIM and poor asset quality, however, collection efficiency have started to improve in July 2021.

Key Highlights of Q1FY22 Results

* Gross NPA (@ 60 +DPD) stood at 7.56% as compared to 4.43% in the last quarter. Collection efficiency for CA Grameen (excl arrears) declined from 94% on March 21 to 87% in June-21, primarily on account of the inability of field force to meet customers and certain customers holding back repayment to conserve the cash. Also, the company deferred collections in the 2 nd week of May for a month, in certain states like Karnataka, Tamil Nadu, Kerala, and Maharashtra.

* Collections excluding arrears touched 91% in July, indicating a healthy recovery in collections. While Karnataka and Tamil Nadu are in recovery mode, Maharashtra is seeing some pressure on collections due to long-term lockdown and floods. As economic activities are showing signs of pick up, management expects credit cost in FY22 to be lower than FY21. The company has restructured 0.7% of Gross loans in FY21 and has added around Rs.6- 9cr to this book.

* Consolidated gross loan portfolio increased by 8% yoy to Rs.12,664 cr. The consolidated customer base declined from 40.54 lakhs to 39.12 lakhs primarily due to write-off. Disbursements of Rs.1,065 cr in Q1 FY22 compared to Rs.46 cr in the prior period. Disbursements sharply picked up in Jul-21 at Rs.1,259 cr. Management expects loan growth to be higher in FY22 than last year, considering 3 rd wave of Covid doesn’t happen.

* On the P&L front, NII went down by 7.7% yoy at Rs.338.0 cr, with NIM at 10.2% during the quarter as compared to 10.8% in Q4FY21. Interest income de-recognized in the quarter was Rs.21.3 cr, excluding this, NIM would have been 10.9%. Pre provision operating profit was Rs.216 cr, impairment on the financial instrument was Rs.188 cr, which includes the impact of write-off of Rs.79 cr. PAT fell by 72.8% yoy to Rs.20.3 cr in Q1FY22.

* The company is well capitalized with Tier-I at 27.3% and CAR at 28.6%. It has maintained healthy liquidity with 16% of total AUM in cash and cash equivalents. The company plans to reduce the cash and cash equivalent to 10% by September 2021, which will aid in margin accretion going forward.

* Company received tax notice of Rs.2,333cr relating to assessment year FY19 from Income department. However the company is confident that there was an inaccurate calculation by the Income-tax officials and even the High Court of Karnataka has put a stay on the Income tax order, restricting the IT Dept to take further action.

OUTLOOK AND VALUATION

We believe CAG is best placed to grow and capture a high market share on account of its strong capital base supported by strong parentage, focus on underpenetrated rural areas, and early stress recognition practice. Going forward, we have increased the credit cost for FY22E and have reduced the price/adjusted book multiple from 2.65x to 2.5x, considering the near-term asset quality issues. We have a HOLD rating with a revised target price of Rs.731 for 12-18 months.

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