‘Buy’ This Finance Stock With A Target Price of Rs 755 Says Axis Securities

Key result highlights of CreditAccess Grameen Limited according to Axis Securities

• NII stood at Rs 369 Cr (+11.5% YoY, +9% QoQ). NII was lower due to interest reversal on NPA recognition of Rs 20.6 Cr. NIMs improved on a sequential basis and stood at 11.2% vs. 10.2% in Q1FY22 owing to lower liquidity (down to 11% of assets vs. 16% in Q1FY22).
• Non-interest income stood at Rs 21 Cr (+120% YoY, -30% QoQ). PPOP stood at Rs 219 Cr (+11% YoY, flat QoQ) vs. our expectation of Rs 226 Cr.
• Provisions for the quarter stood at Rs 140 Cr (vs. our estimate of Rs 150 Cr). Credit cost was higher by Rs 13.4 Cr, owing to a shift in the NPA recognition to 60+ dpd (vs. earlier policy of 90dpd) for MMFL. The company holds 5.9% of ECL provision against NPA of 7.7%.
• Lower-than-expected provisions resulted in a marginally higher PAT of Rs 57.9 Cr (- 25% YoY, +194.5% QoQ).
• The company set up 121 new branches and entered newer geographies of UP, Bihar, Chattisgarh, Gujarat, Rajasthan, and Jharkhand during Q2FY22. During Oct'21, CAG added 21 new branches.

Q2FY22 results of CreditAccess Grameen Limited

Axis Securities has said in its research report that "CreditAccess Grameen Ltd. (CAG) reported numbers that were broadly in line with expectations. On the operational front, disbursements during Q2FY22 stood at Rs 3,890 Cr (+174% YoY, 265% QoQ) translating into a GLP growth of 19% YoY. The growth momentum has sustained going into Oct'21 as disbursements stood at Rs 1,371 Cr (+18% YoY for CAG standalone and +42% YoY for MMFL), and GLP grew by 19% YoY in Oct'21."

According to the brokerage "On the asset quality front, GNPA remained largely stable at 7.7% vs. 7.6% in Q1FY22 aided by the write-off of Rs 130 Cr during the quarter. The company has aligned NPA recognition policy at 60+ dpd for MMFL (vs. earlier policy of 90dpd). CAG has seen a significant improvement in PAR0 from 30.6% in Jun'21 to 9.9% in Oct'21. Collection Efficiency (CE) excluding arrears improved to 93.3% in Q2FY22 and further to 94.3% in Oct'21, while CE (incl. arrears) remained stable at 98%. The management expects the CE to improve further and normalise in the coming months provided the COVID 3.0 does not materialize."

Buy CreditAccess Grameen Limited with a target price of Rs 755

Axis Securities has reported in its research report that "The significant drop in the PAR0 signalling at lower incremental stress build-up, MoM pick-up in collections along with near normalised levels of disbursements are key positives. While stress remains elevated in the MMFL book, the management's confidence in asset quality recovery by the end of FY22E is reassuring. The focus on rural markets in the MFI business along with a renewed focus on the retail finance book provides a large addressable market to grow over the medium term. With chances of COVID 3.0 appearing to be bleak, the recovery for CAG would be quicker and the company would be able to bounce back strongly and regain lost ground."

According to the brokerage's view " We believe current valuations are attractive and provide a good entry point from a long-term perspective. We maintain our BUY recommendation on the stock and value CAG at 2.4x H1FY24E BV to arrive at a target price of Rs 755/share, implying an upside of 26% from CMP. We believe that our target multiple reflects the superior return profile (~16% ROE by FY24E), large growth opportunity in the rural markets and the inherent risks in the MFI business."

Disclaimer

The above stock is picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.