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Our take

CreditAccess Grameen Ltd. is one of the largest NBFC-MFI accounting for 5.24% market share on consolidated basis as on Mar-21. The company has strong competitive advantages with resilient business model, robust balance sheet, expanded scale and presence post MMFL acquisition and deep rural presence with 40-45% of incremental customers being new to credit.

The company has well diversified borrowing profile and has enough capital to fund the loan growth and strategy of aggressive branches expansions without any external capital infusion in the foreseeable future. It has 3.7Mn borrowers of which ~1Mn gross loan borrowers have completed 3 years with strong client retention. We like the focus of the company on the diversification of business.

For the geographic diversification, the target is to reduce the share of top 3 states from over 80% in FY2021 to around 60-65% by FY2025. It is developing new products which will help diversify and become the “Single Channel” for all lifecycle financial needs. Going forward, its future growth is likely to be driven by expansion of its successful credit delivery model into new markets and deeper penetration in the existing ones. Prolong economic slowdown poses risk to the pace of collections and business growth.

We had issued Re-Initiating Report on CreditAccess Grameen Ltd on 26th March, 2021 and recommended Buy at 618 and add on dips to Rs.566, for base case target of Rs.685 and bull case target of Rs.733 over the next two quarters. On 12th April,2021 the stock entered our average band. The Bull case target of Rs.733 was achieved on 4 th June, 2021, yielding 23.8% return. 

Valuation and recommendation:

CreditAccess has proven track record of delivering industry leading growth. Its AUM has grown at CAGR of 45% over FY17-21 (including MMFL). Niche positioning in deeper geographies backed by superior liquidity provides edge over other peers. With the newer branches maturing and complete integration with MMFL, the operating leverage will start kicking in.

We have envisaged 29% CAGR growth for top line and 155% for bottom line (lower base), while loan book is estimated to grow at 20.2% CAGR over FY21-23E. Conservative stance in provisioning and impairment recognition has helped maintain high ECL provisions. We feel that the asset quality will start recovering from H2GF22 onwards with upside risk from COVID third wave. RoAA is estimated at 4.7% for FY23. Our assigned multiple reflects Credit Access’ high cross-cycle potential RoE and a relatively conservative approach to an inherently risky business.

The stock at LTP is trading at 2.1x FY23EABV. We believe that the stock will keep getting premium valuations due to its niche retail book, industry leading growth and superior return ratios. We believe that investors can buy CreditAccess Grameen Ltd at LTP of Rs.682 (2.1xFY23E ABV) and add more at Rs.606 (1.9xFY23E ABV) for the base case fair value of Rs.749 (2.35xFY23E ABV) and for the bull case fair value of Rs.813 (2.55xFY23E ABV) over the next two quarters.

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