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Earnings in line; higher credit costs offset by lower opex

NIM stable QoQ, but asset quality deteriorates due to TN floods

CreditAccess Grameen (CREDAG) delivered a healthy operational performance in 3QFY24, with ~64% YoY growth in PAT to ~INR3.5b. NII jumped 49% YoY to ~INR8b, with a stable NIM (reported) of ~13.1%.

PPoP grew 59% YoY to ~INR6b, with scale benefits and positive operating leverage resulting in a cost-income ratio (CIR) of ~30% (PY: ~36%). Even with ~50bp reduction in lending rates from Dec’23 onwards, management maintained its NIM guidance of 12.7-12.8% and CIR of 31-32%. We model NIM (calc.) and CIR of ~14.1% and ~31%, respectively, in FY25E

Implementation of the Core Banking Solution (CBS) impacted hurt disbursements and customer acquisition in 3QFY24 resulting in customer acquisitions of ~270K (PQ: ~330K). Disbursements were affected in Nov’23 but exhibited a robust recovery in Dec’23.

GNPA/NNPA deteriorated ~20bp/5bp QoQ to ~0.97%/~0.3% due to floods in Tamil Nadu and higher steady-state PAR from non-Karnataka states. This also led to annualized credit costs rising ~45bp QoQ to 2.3% (PQ: 1.8% and PY: 2.2%).

We estimate a CAGR of 24%/37% in AUM/PAT over FY23-FY26, leading to an RoA/RoE of ~5.4%/23% in FY26. Despite cyclical tailwinds, the upcoming general election this year is a near-term risk for the sector. We strongly believe that the magnitude and frequency of loan waivers (if any) will be much lower than in the past.

While the current valuation of 2.5x Mar’26E P/BV is not inexpensive, CREDAG will continue to deliver robust return ratios, aided by a strong underlying business model. We reiterate our BUY rating with a revised TP of INR1,985 (based on a target multiple of 3.0x Mar’26E P/BV).

Highlights from the management commentary

Management guided that the CoB has peaked out and will remain stable in the near term. 

The company reiterated its FY24 AUM growth guidance of 25%. It does not expect to raise equity capital for 2-3 years and will go for a capital raise when the CRAR is below 20%.

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 across various credit cycles and external disturbances. With a strong capital position (Tier-1 of ~24%), the company can very well navigate any potential disruptions in the future and also capitalize on the growth opportunity over the medium term. Reiterate our BUY rating on the stock with a revised TP of INR1,985 (based on 3.0x Mar’26 P/BV).

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SEBI Registration number is INH000000412