Buy CreditAccess Grameen Ltd For Target Rs. 1,475 By JM Financial Services
CREDAG reported a PAT of INR 602bn (+27% QoQ, -85% YoY) in 1QFY26 led by decline in credit cost (ann.) ~9.4% vs. 9.8% in Q4FY25. PAR numbers are stabilising across states with headline GNPA remaining steady (-7bps QoQ). Management expects credit costs to remain elevated in Q2 and stabilize to ~3-3.5% in 2HFY25. FY26 growth/RoE guidance was maintained at ~14%-18% and ~11.8%-13.3% with major contribution coming from 2HFY26 especially from retail finance book. While MFI is not completely out of woods, CREDAG should be the first one among MFIs to recover from current stress cycle given its ability to recognize early stress (stage 2 at 30dpd and stage 3 at 60dpd in MFI), accelerated write-off policy and higher ECL cover (~55%/65% on stage-2/stage-3). Stock is currently trading at a valuation of 2.5x 1-Year Fwd. FY27E BVPS (similar at LT average). We expect ~15% AUM CAGR during FY25-27E with avg. RoE of ~15% during FY26-27E. Given improving outlook, we upgrade the stock to BUY and revise our TP to INR 1,475 valuing it at 2.6x FY27E BVPS (vs. earlier TP of INR 1,135 valued at 1.9x FY27E).
* Operating performance broadly in line; credit costs declined sequentially: CREDAG reported a PAT of INR 602mn (+27% QoQ, -85% YoY, -17% JMFe). This was led by 10bps NIMs expansion leading to NII growth of -2% YoY, +6% QoQ. Opex increased +12% YoY, +11% QoQ as the company added 1k new employees in Q4FY25 and opened 54 new branches during the quarter. This led to PPoP growth of +3% QoQ, -8% YoY, -1% JMFe. Credit costs declined sequentially to 9.4% vs 9.8% QoQ due to reduction in new PAR accretion which was partially offset by accelerated write offs of INR 6.92bn (vs 5.18bn in 4QFY25). The credit cost was primarily driven by company’s accelerated write-off of non-paying and 180+ DPD accounts, which amounted to INR 6.03bn in 1QFY26, resulting in additional credit cost of INR 1.93bn. Management indicated that its CoFs will take 2 more quarters to decline mainly as MCLR linked borrowings take 6-9 months to re-price. Credit costs are expected to remain elevated in Q2 while it is expected decline to moderate to 3-3.5% by 2HFY26.
* Stage-3 improves sequentially: PAR 90+ remained sequentially flat at 3.3% while ECL on GNPA declined to 63.2% (vs 64.8% QoQ). Collection efficiency (excl. arrears) for the quarter improved to 93.2% vs (91.9% QoQ) which led to a decline in GNPA to 4.7% (vs 4.8% QoQ) with majorly all states being stable except Karnatka (KA) due to ordinance. PAR 15+ rates across core geographies— TN, Bihar/UP, MH and even Karnataka—peaked in Nov-24, but showed signs of improvement in the quarter (improved even sequentially). CREDAG has made steady development in deleveraging of its borrowers, with proportion of 3+ lenders declining to 11.1% (vs 18.8% in Aug-24). PAR30 in unsecured retail finance segment moved up 75-80bps from sub-2% levels in Q4FY25. Management guided for credit costs to be 5.5-6% for FY26E. We have built in credit costs of ~6.5%/~3.4% for FY26E/27E.
* Retail finance offsets de-growth in group loans: AUM remained flattish (-1% YoY, flat QoQ) as disbursements de-grew -16% QoQ, +22% YoY. However, de-growth in MFI editAccess Grameen 22 July 2025 JM Financial Institutional Securities Limited Page 2 loans was offset by healthy growth in retail finance (+16% QoQ). In retail finance (6.8% of AUM), secured mix (mainly two-wheeler and affordable housing finance) constitute 25% and unsecured mix of 75%. Management aims it to to bring the mix to 50:50 over the medium term. Given the on-going challenges in the macro-environment, we anticipate growth in MFI to remain muted even in Q2, however we expect a gradual normalization by H2 of FY26 (unless conditions deteriorate further). We expect FY26 growth to be mainly contributed by secured retail finance and we build in an AUM growth of 12%/18% over FY26E/FY27E.
* Valuation and view: While MFI is not completely out of woods, CREDAG should be the first one among MFIs to recover from current stress cycle given its ability to recognize early stress (stage 2 at 30dpd and stage 3 at 60dpd in MFI), accelerated write-off policy and higher ECL cover (~55%/65% on stage-2/stage-3). Stock is currently trading at a valuation of 2.5x 1-Year Fwd. FY27E BVPS (similar at LT average). We expect ~15% AUM CAGR during FY25-27E with avg. RoE of ~15% during FY26-27E. Given improving outlook, we upgrade the stock to BUY and revise our TP to INR 1,475 valuing it at 2.6x FY27E BVPS (vs. earlier TP of INR 1,135 valued at 1.9x FY27E).
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