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Maintaining our positive outlook

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 (GLP) declined 7% on sequential basis to Rs.12,664cr as disbursement took a hit during the quarter due to lockdown and restrictions.

* Disbursement for the quarter de-grew by 77% QoQ while it reached pre-covid levels during July.

* Though collections were impacted due to lockdown in key cities, improvement was visible during July giving hopes of better asset quality in the coming quarters.

* Interest income declined by 7.3% YoY and 9.8% QoQ while Net Profit declined by 68.8% YoY and 70.7% sequentially due to collective impact of interest reversal, higher opex and elevated provision.

* We maintain our Buy rating with a revised upward target price of Rs.775 based on 2.5x FY23E Adj. BVPS.

Gross Loan Portfolio declined due to lower disbursement

In Q1FY22, Gross Loan Portfolio (GLP) declined 7% on sequential basis to Rs.12,664cr as disbursement took a hit during the quarter due to lockdown and related restrictions. Total disbursement de-grew by 77% sequentially to Rs.1065cr. However, disbursements have shown a large improvement and reported pre-covid levels during July.

Company has opened 66 new branches in July 2021 in-order to expand its business. Number of borrowers saw a 5.6% decline during the month to 37.85 lakh (39.12 lakh in previous quarter). GLP of standalone entity de-grew by 6.7% QoQ to Rs 10,625cr while MMFL de-grew by 9.2% to Rs 2,038cr .

High opex and provision impacted net profit

During the quarter, Net Interest Income (NII) de-grew by 7.3% YoY and 9.8% QoQ due to 1.7%YoY decline in interest income and 7.2% YoY increase in interest expenses. Decline in interest income was due to interest reversal on NPA recognition of about Rs.21.3cr. Non interest income stood at Rs30.03cr, an increase of 34% YoY and a decline of 74% QoQ.

Operating expenses saw an increase of 15.2% YoY and resultantly pre-provision profit declined 15.3% YoY while declined 34.2% sequentially. Cost to income ratio increased from 32.7% in Q4FY21 to 41.2% during the quarter. As provisions remained elevated at Rs.187.9cr, company reported an adjusted net profit of Rs.22.5cr registering a 68.8% decline YoY and 70.7% decline sequentially. ROA for the quarter stood at 0.5% and ROE at 2.1%.

Improvement in collection efficiency during July

During the quarter collection efficiency remained under pressure due to lockdown stringent lockdown. Collection including arrears during May stood at 79% while it was at 84% in June. Collection efficiency improved to 97% in July which gives confidence for a better asset quality in the coming quarters. As on July 2021, 76.6% borrowers have made full payment while 16.9% made partial payments. Only 6.5% of the borrowers did not make a single payment.

In absence of a third wave, we expect improvement in collection efficiency and asset quality going forward. As on Q1FY22, consolidated GNPA stands at 7.56% against 4.43% in previous quarter. Provisioning stands at 6.30% as against 5.01% in previous quarter. GNPA looks elevated as company follows 60dpd (Day Past Due) compared to 90 dpd followed by peers. However, PAR 90+ (Portfolio At Risk) stands at 4.02% on a consolidated level.

Outlook and valuation

Improvement seen in disbursement and collection efficiency during July gives confidence on better business performance in FY22 compared to previous fiscal. In absence of a third wave, the asset quality is also expected to improve from coming quarter. We value the company at 2.5x on FY23E Adj BVPS and arrive at a target price of Rs 775 and maintain our BUY rating.

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