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Healthy quarter; Prudent asset quality management

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

* Gross Loan Portfolio grew to Rs 13,587cr (13%YoY) supported by 15% growth in standalone entity and 7% growth in its subsidiary Madura microfinance.

* Disbursement for the quarter grew at 42% YoY and 3% QoQ to Rs 4726cr.

* Gradual pickup in collection is seen during the quarter, however, a decline on the same is expected in the coming quarter due to lockdown impact.

* Interest income grew by 19.2% QoQ to Rs 612cr whereas PAT was Rs 56.3cr impacted by higher provisioning.

* GNPA improved to 4.43% from 6.14% in Q3FY21(proforma) while NNPA remained at 0%.

* We upgrade our rating to Buy with a revised downward target price of Rs 767 based on 2.5x FY23E Adj. BVPS.

Strong disbursement aided growth in Gross Loan Portfolio In Q4FY21, total disbursement grew by 42% YoY and 3% QoQ to Rs 4,726cr and resultantly Gross Loan Portfolio (GLP) grew by 13% YoY and 10% QoQ. GLP of standalone entity grew by 15% YoY to Rs 11,341cr while MMFL grew by 7% to Rs 2,246cr. However, number of borrowers saw a reduction of 3.5% YoY to 39.12 lakh. During the quarter, interest income grew 19.2% QoQ while finance cost grew only by 6.1% . As a result, Net Interest Income grew 52.5% QoQ to Rs 304cr. Pre-provision profit was at Rs 329cr while PAT was Rs 56.3 cr due to high provisioning. Strong profitability in Q4FY21 was utilised to absorb accelerated write-offs and build additional provisioning buffer ahead of FY22.

Company continuing its focus on maintaining asset quality

During the quarter, collections has witnessed gradual pickup with 94.8% customers making full payment and 3.3% customers making partial payment against 88.1% full payment and 6.8% partial payment in December 2020.

Collection efficiency during March stands at 94% excluding arrears abd 97% including arrears. However, with increasing virus spread and lockdown, we expect collection to show partial decline in the coming quarter. GNPA for the quarter stands at 4.43% against 6.14% in Q3FY21(proforma basis). Company continue to maintain its focus on early risk recognition and provisioning practice and therefore total provisioning stands at 5.01% against GNPA of 4.43%.

During Q4FY21, Rs 278.7 cr were written off and additional covid buffer of Rs 103.4cr were created for FY22 by CAGL while MMFL written off Rs 39.2cr and created covid buffer of Rs 8.8cr.

Margins, Return ratios & Capital Adequacy

During the quarter, reported yield stood at 18.6% against 16.3% in the previous quarter while cost of borrowing reduced to 8.9% against 9.3%. As a result NIM improved from 8.7% to 11.3%. Cost to income ratio has also shown a decline from 43.7% in Q3FY21 to 29.2% aiding to higher profitability. ROE for the quarter stood at 4.0% and ROA at 0.9%. Capital Adequacy ratio improved from 31.4% in Q3FY21 and 23.6% in Q4FY20 to 31.8% this quarter.

Outlook and valuation

At CMP, the stock is trading at Adj P/BV of 2.3x & 2.0x respectively in FY22E and FY23E. Though we expect slow down in disbursement and rise in slippages due to impact of lockdown in the coming quarter, company’s prudent measure of early recognition of slippages and provisioning will help in maintaining superior asset quality. We value the company at 2.5x on FY23E Adj BVPS and arrive at a target price of Rs 767 and upgrade our rating to BUY.

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