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About the Company

CreditAccess Grameen (CAGrameen) is a rural-focused Microfinancier that caters mainly to women borrowers who lack access to the formal banking sector. CA Grameen is predominantly present in Karnataka, Maharashtra, and Tamil Nadu, which cumulatively contribute to 71% of its Gross Loan Portfolio (GLP) and 63% of its total borrower base as of Jun’25

Investment Rationale

* Asset Quality to Improve:

CAGrameen’s Collection Efficiency (CE) improved to 93.2% in Q1FY26 (93.5% in Jun’25) vs 91.9% in Q4FY25, with improvement visible across all geographies (slightly delayed in KA). The management indicated that the collections (incl. KA) in Jul’25 have been stable and expects a similar strong trend to continue over Aug-Sep’25. CAGrameen has seen the PAR15+ accretion rate trend downwards to 0.46% in Jun’25 vs 0.84% in Mar’25, indicating lower incremental credit costs. The management expects new PAR accretion trends in KA to trend downwards in Q2, though with a lag compared to other geographies. With monthly trends PAR accretions indicating continued improvement across geographies, the management remains confident of credit costs tapering meaningfully in Q2 and further down in H2FY26. The management has maintained its credit costs guidance of 5.5-6% for FY26, and we expect them to trend meaningfully downwards from FY27E onwards.

* Growth Momentum to Improve:

With the monthly PAR accretion on a continued downward trend, the focus will shift towards resuming growth from H2FY26 onwards. CAGrameen aims to maintain a monthly customer addition run-rate of 1 Lc customers, a stark improvement after a softer H1, which is primarily impacted by higher rejection rates due to the more stringent MFIN 2.0 guardrails and higher write-offs. The heavy lifting on GLP growth in FY26 would be done by the Retail Finance portfolio. Hereon, the company’s focus will remain on pursuing balanced growth in the MFI portfolio while onboarding quality new-to-credit customers. CAGrameen expects MFI growth to settle at 13-15% on a steady state basis, with the retail finance portfolio being the key growth driver for overall AUM growth pegged at ~20-25% CAGR.

* Strong NIM Profile to be Maintained:

CAGrameen expects NIMs to remain range-bound between 12.6-12.8% in FY26, with the impact of higher interest reversals being visible in H1. It continues to diversify its borrowing mix by improving the mix of foreign borrowings to 25-30% by FY28 vs ~22.4% currently. The impact of the repo rate cut will reflect in the CoF and would be more pronounced in Q4FY26 and early FY27, driving CoF downwards meaningfully. This is due to the majority of borrowings being linked to the MCLR, which resets annually, causing the impact of any rate cut to reflect with a delay. As the impact of interest reversals tapers from H2 onwards, we expect CAGrameen’s margins to remain range-bound between 12.8-12.9% over FY26-28E.

Valuation & Recommendation:

CAGrameen has been successfully navigating the challenges of the recent MFI credit downcycle and exhibited resilience as it gradually inches closer to normalcy. We expect CAGrameen to revert to its RoA delivery of 4.5+% from FY27E, supported by (a) Strong GLP growth, (b) Steady Margin Profile, (c) Controlled Opex, and (d) Meaningfully lower credit costs. Resultantly, we factor in a strong GLP/NII/Earnings CAGR growth of 18/13/54% over FY25-28E, with RoA/RoE delivery of 4.5-4.6%/18-19% over the same period. We recommend a BUY on the stock with a target price of Rs 1,461/share, implying an upside of 10% from the CMP.

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