IGI Logo

Operational efficiency  to support valuation...

CreditAccess Grameen Ltd. (CAGL) is one of the leading microfinance NBFCs in India with a strong focus on group lending and retail finance. The majority of its operations in South India

* The Gross Loan Portfolio (GLP) grew by 20.6%YoY, reaching Rs.26,304cr, while the number of active borrowers increased by 12.7%YoY.

* Advances are expected to grow at a CAGR of 23% during FY25-26, supported by strong customer additions.  

* The Net Interest Income (NII) growth stood at 28.7%YoY. The Net Interest Margin (NIM) contracted by  10bps QoQ and stood at 13%.

* The GNPA and NNPA rose to 1.46% and 0.45%, respectively, from 1.18% and 0.34% in the previous quarter, due to a temporary increase in delinquencies related to seasonal factors.  

* Despite a soft H1FY25, the management remains confident of achieving its guidance spelled for FY25E, driven by strong growth in H2FY25. We believe CAGL remains well-placed to deliver strong  return ratios. Consequently, we maintain our BUY rating with a target price of Rs.1,565, based on a 2.4x FY26E BVPS. 

GPL growth moderated

In Q1FY25, GLP exhibited moderated growth, soaring by 20.6%YoY to Rs.26,304cr. The total number of borrowers rose by 12.7%YoY to 49.84lakh. The momentum of growth stalled due to seasonal weakness generally seen in Q1, severe heatwave across regions, and limitations due to general elections. Although the new MFIN guidelines are expected to impact the borrower base, CAGL is confident that the new customer additions will adequately compensate for any loss in borrowers due to the guidelines. Management is confident in achieving its target growth as disbursements have reached normalcy by the beginning of Q2.  

Credit cost inched higher

NII grew by 29%YoY due to Rs.927cr due to a 30% increase in interest income, while interest expenses grew by 33%. The portfolio yield of CAGL remained stable at 21% during the quarter. The weighted average cost of borrowing remained steady at 9.8%, while the marginal cost of borrowing decreased by 30 bps YoY to 9.4%. The NIM remained flat at 13.1% compared to Q1FY24. The company reported a feeble growth of 14.1%YoY in net profit at Rs.397cr, due to a 129% increase in provisions as there is transitional stress from assets. Management is confident that the increment in credit cost is already factored into the credit cost guidance of 2.2%-2.4% for FY25. ROA for the quarter stood at 5.4% and ROE at 23.5%.  We expect the PAT to grow at a CAGR of 21% for FY2526

Asset Quality deteriorated 

During Q4, the collection efficiency (excluding arrears) declined to 97.8% from 98.3% in Q4FY24. The GNPA of CAGL stands at 1.46%, compared to 1.18% in Q4FY23, while NNPA declined by 10bps to 0.45%. The current stress in asset quality is considered transitional, as operational efficiency has returned to normalcy by the beginning of Q2FY25. ECL provision stands at 2.29%, which is well above the GNPA. 

Outlook and valuation

CAGL has put in place corrective actions to restore its operational efficiency. Despite a soft H1FY25, the management remains confident of achieving its guidance for FY25E, driven by strong growth in H2FY25. We believe CAGL remains well-placed to deliver strong  return ratios. Consequently, we maintain our BUY rating with a target price of Rs.1,565, based on a 2.4x FY26E BVPS.   

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345