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Strong growth outlook with premium ROA

CreditAccess Grameen Limited (CAGL) is one of the leading Microfinance NBFCs in India with a high focus on Group lending and Retail finance, with the majority of its operations in South India.

• Gross Loan Portfolio (GLP) grew at a strong 39.7% YoY to Rs.21,814cr on the back of 122.3% YoY disbursement growth.

• Management aims to touch a GLP of Rs.50,000cr in the next 4 to 5 years by leveraging its solid foundation and leadership position in the microfinance industry.

• Advances are expected to grow at a CAGR of 23% during FY23-25, backed by strong customer addition.

• The cost is expected to increase further as the company works towards increasing long term borrowings. Management has guided for NIM at 12.0% to 12.2% for FY24.

• We believe that the growth momentum will continue in the coming quarters and the company will be able to register premium return ratios. Hence, we upgrade our rating to BUY with a revised upward target price of Rs.1,615 based on 3.3x FY25E Adj. BVPS.

Gross Loan Portfolio growth aided by strong disbursements

In Q1FY24, the consolidated Gross Loan Portfolio (GLP) grew at a strong 39.7% YoY to Rs.21,814cr on the back of 122.3% YoY disbursement growth. The total number of borrowers increased by 19.9% YoY to 44.23 lakh. The momentum is expected to continue in the upcoming year, where the management has guided for growth of 24-25% during FY24. Management aims to achieve the milestone GLP of Rs.25,000cr in the near term and expects the same to touch Rs.50,000cr in the next 4 to 5 years by leveraging its solid foundation and leadership position in the microfinance industry. CAGL also aims at asset diversification with a nonMFI mix of 10-15% in the coming years.

Guided for ROA of ~5% for FY24

Net Interest Income (NII) grew by 57.8% YoY due to a 50.1% increase in interest income, while interest expenses grew by 37.6%. The reported portfolio yield of CAGL improved 100bps to 20.7% during the quarter as a result of portfolio repricing. While the rate of new disbursements stood at 21.9%. As per the management, 16% of the loan book is yet to be re-priced, and the same will provide some cushion over the rising borrowing cost. The weighted average cost of borrowing stood at 9.6%, compared to 9.5% in the previous quarter. The marginal cost of lending, however, increased 30 bps sequentially to 9.7%. As a result, the reported NIM improved 80 bps sequentially and 190bps YoY to 13.0%. Management expects costs to increase further as the company works towards increasing long-term borrowings. Management has guided for NIM at 12.0% to 12.2% for FY24. The company reported a strong growth of 151% YoY in net profit at Rs.346.3cr. ROA for the quarter stood at 5.8% and ROE at 26.4% Management has maintained their FY24 guidance for ROA between 4.7%-4.9% and ROE between 20.0%-21.0%. However, with the stellar performance in Q1, we expect management to revise their guidance upward in the coming quarter.

Improvement in asset quality

During Q1, the collection efficiency (excluding arrears) stood at 98.7%. The GNPA of CAG stands at 0.89% against 1.21% in the previous quarter, while the NNPA improved 15 bps to 0.27%. With FY23 credit costs at 2.1%, management has guided FY24 credit costs to be between 1.6% and 1.8%.

Outlook and valuation

CAGL exhibited a strong improvement in disbursement and collection efficiency during the quarter. Though the company has been conservative by maintaining their growth guidance, looking at the current business momentum, we expect CAGL to grow above their guidance. We expect ROA to surpass their guidance, with ROA for FY24 expected at 5.0% and for FY25 at 5.1%. With growth momentum expected to continue, we upgrade our rating to Accumulate with an upwardly revised target price of Rs.1,615 based on 3.3x FY25E Adj BVPS.

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