Buy CreditAccess Grameen Ltd For The Target Price Rs.1,389 - Investec Ltd
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Ticks all boxes | Guidance upgraded
CREDAG continues to post strong numbers – a beat of ~10% to our PAT estimate; RoA/RoE of 5.6%/25%; AUM growth of 3% QoQ, 36% YoY; NIM expansion (10bps QoQ) and asset quality improvement (GNPA declined 10bps QoQ). Its business has further strengthened with continued geographic expansion (entered AP and TL) and liabilities diversification. It will be scaling new initiatives around secured MSME, 2W, gold and affordable housing which will further de-risk the business and provide scalability. H1 results show its cross-cycle RoA/RoE have improved structurally on better margin, leading to it upgrading its FY24E RoE guidance to 24%-25%. We upgrade PAT estimates by 3-5%and TP to Rs1600. BUY.
* Strong AUM & client growth: AUM grew 36% YoY, aided by growing client base (up 21% YoY). QoQ AUM growth (+3%) was moderate due to seasonality. Client base grew 4% QoQ. Client acquisition remains strong 0.34mn for Q2.
* Geographic diversification continuing: The share of KN, MH and TN have decreased from 77.2% in Q2FY23 to 73.5% in Q2FY24. ~40% of new customer addition is outside of top 3 states. It entered TL and AP in contiguous districts.
* NIM improvement behind: NIMs expanded 10bps QoQ to 13.1%. Management guided for CoF peaking out at current level of 9.8%. However, it expects NIM to contract to 12.7-12.8% in the coming quarters due to higher leverage. We believe NIMs to remain at ~13% vs ~12% in spread cap era.
* AQ remained best in class with GNPA declining 10bps QoQ to 0.8% and NNPA being at 0.2%. PAR0 increased 10bps QoQ to 1.3% however PAR30/60/90 declined 10bps QoQ. These numbers are the best in the industry in our view. It has strong controls in form of strong audit and risk teams.
* Liabilities diversification continues: It has been diversifying liabilities by increasing share of a) foreign sources of funding and b) retail NCDs. This, we believe, is one of the key differentiations with other MFIs and key to scalability.
* Upgrade estimates & TP: We upgrade PAT ests by 3%-5% and TP to Rs 1600. It trades at 2.7x FY25E P/B. We see incremental returns to be linked to BVPS compounding which we expect at ~27% CAGR (FY23-FY26E). BUY
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