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Strong quarter reinforces confidence; credit costs now normalized NIM expands ~20bp QoQ; Retail Finance now forms ~21% of the GLP mix

* Grameen (CREDAG)’s 1QFY27 PAT grew ~45% QoQ to INR4.9b (~11% beat). NII grew 29% YoY to ~INR11.6b (inline). PPOP grew ~34% YoY to INR8.7b (~6% beat).

* Opex grew ~10% YoY to INR3.6b (inline). The Cost-to-income ratio declined ~110bp QoQ to ~29.3% (PQ: ~30.4% and PY: ~33.5%). Annualized credit costs declined to ~2.8% (PQ: ~4.8%). Considering the ongoing West Asia crisis, the company has created additional provisions of ~INR410m. Its RoA/RoE stood at 5.9%/24.4% in 1QFY27.

* Management reiterated its medium-term AUM target of ~INR500b by CY28, with borrower additions and retail portfolio expansion likely to remain the key growth drivers. The company aims to scale borrower additions to ~100k per month, supported by its expanding branch network. Growth will also be driven by the graduation of seasoned MFI customers into higher-ticket retail products, with Retail Finance now forming ~20.6% of AUM. Its Grameen Mahi platform is anticipated to further support customer acquisition, cross-sell opportunities, and digital engagement.

* CREDAG remains well-positioned for sustainable growth, supported by its deep rural presence, strong customer franchise and ability to graduate existing MFI customers into higher-ticket individual loans, enabling portfolio diversification. Stable margins, improving asset quality and prudent risk management further provide confidence in the medium-term outlook.

* We raise our FY27E/FY28E EPS by ~13%/ ~6% to factor in higher NIM, lower credit costs, and higher fee income. We estimate a CAGR of 21%/68% in AUM/PAT over FY26-28E, leading to RoA/RoE of ~5.1%/20% in FY28. CREDAG trades at 2.5x FY27E P/BV, and given its superior execution, we expect its premium valuations over its MFI peers to be sustained. Reiterate BUY with a revised TP of INR1,880 (based on 2.5x Mar’28E P/BV).

Disbursements grow ~12% YoY; the borrower base remains flat QoQ

* Disbursements rose ~12% YoY to ~INR61b. AUM grew ~16% YoY and 2.5% QoQ to ~INR303b. The borrower base was flat QoQ at ~4.5m (PQ: ~4.4m).

* CREDAG opened ~42 new branches during the quarter to reach 2,276 branches. The number of loan officers was broadly unchanged, and CREDAG employed ~14.5k loan officers as of Jun’26. We expect the company to deliver an AUM CAGR of ~21% over FY26-28E.

Valuation and view

* CREDAG delivered a strong quarter, supported by healthy AUM growth, improving asset quality, and resilient operating performance. PAR trends have continued to improve, while the absence of any visible impact from external factors, such as the West Asia crisis or El Niño, provides further comfort on growth prospects and asset quality. With credit costs expected to trend towards the lower end of guidance if the macro environment remains stable, continued focus on borrower additions, retail portfolio expansion, and prudent risk management should boost sustainable growth.

* We estimate a CAGR of 21%/68% in AUM/PAT over FY26-28E, leading to RoA/RoE of ~5.1%/20% in FY28E. CREDAG trades at 2.5x FY27E P/BV, and given its superior execution, we expect its premium valuations over its MFI peers to sustain. We reiterate our BUY rating with a revised TP of INR1,880 (based on 2.5x Mar’28E P/BV).

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