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Guidance on credit costs raised but can still deliver healthy RoA/RoE

-      CreditAccess Grameen (CREDAG) delivered a healthy operational performance in 4QFY24, with 34% YoY growth in PAT to ~INR3.97b (inline). 4QFY24 NII grew ~42% YoY to ~INR8.8b and PPoP grew 36% YoY to ~INR6.8b. FY24 PAT grew ~31% YoY to ~INR5.1b.

-      The cost-income ratio (CIR) was broadly stable QoQ and YoY at ~30%. Opex included ~INR260m toward long-term incentives and one-time special bonus to employees for commemorating the silver jubilee year. The management guides for CIR of ~30-31% in FY25.

-      Reported yield was stable at ~21% and CoF was also stable QoQ at 9.8%, leading to sequentially stable NIM of ~13.1%. Average disbursement yields in 4QFY24 declined ~40bp QoQ and ~50bp YoY to 21.4%. The management guides for a ~20bp decline in portfolio yields because of a ~50bp reduction in lending rates implemented in Dec’23 on incremental disbursements. We model NIM (calc.) of ~14.1%/13.9% in FY25/FY26.

-      4QFY24 disbursements grew ~12% YoY to ~INR80.5b and AUM grew ~27% YoY to ~INR267b. The borrower base grew ~15% YoY to ~4.92m. CREDAG added ~86 branches in 4QFY24, taking the total to 1,967 branches.

-      GNPA/NNPA deteriorated by ~20bp/6bp QoQ to ~1.2%/~0.35%. Stage 3 PCR rose ~40bp QoQ to ~70.8%. Annualized credit costs rose to ~2.4% (~2.2% in 4QFY23 and ~2.3% in 3QFY24) because of higher provisioning on standalone loans and higher write-offs.  

-      We cut our FY25 estimates by ~3% to factor in the high credit cost guidance. We estimate a CAGR of 24%/20% in AUM/PAT over FY24-26, leading to RoA/RoE of ~5.3%/22.6% in FY26. While the current valuation of 2.2x Mar’26E P/BV is not inexpensive, CREDAG will continue to deliver robust return ratios, aided by a strong underlying business model. Reiterate our BUY rating with a revised TP of INR1,725 (based on 2.7x Mar’26E P/BV).

 Highlights from the management commentary

-      FY25 Guidance: GLP growth of 23-24%; NIM of 12.8-12.9%; CIR of 30-31%; credit costs of 2.2-2.4%; RoA of 5.4-5.5% and RoE of 23-23.5%

-      The management expects CoB in FY25 to remain stable as it continues to maintain a robust ALM position.

Valuation and view

-      CREDAG is primed to dominate the segment by: a) providing the lowest-cost organized financing, b) improving operational efficiency through continuous technology enhancement, and c) integrating risk management in every process to drive superior asset quality and lower credit costs.

-      CREDAG’s robust execution has been vindicated by its resilience during various credit cycles and external disturbances. With a strong capital position (Tier-1 of ~22%), it can navigate any potential disruptions in future and also capitalize on the growth opportunity in the medium term. Retain BUY on the stock with a TP of INR1,725 (based on 2.7x Mar’26 P/BV).

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