The stock of micro finance company, Credit Access Grameen has a "buy" rating from broking firm Geojit, with a target price of Rs 824. The stock currently trades at Rs 730 on the National Stock Exchange.
The broking firm believes that the acquisition of Madura Micro Finance will drive value at Credit Access Grameen. Apart from this, Geojit believes that companies like Credit Access Grameen have a huge potential in tapping the rural markets, by leveraging upon the group lending model to channel credit, to the needed areas of rural India.
"In a highly competitive market like micro finance, Credit Access Grameen being the largest NBFC Micro Finance Institution, will be able to strengthen its leadership by acquiring Madura Micro Finance. It would enable the companies to take advantage of best practices in both the institutions," the broking firm has stated.
At the current market price, the stock is trading at P/BV of 3x and 2.5x respectively for FY21E & FY22E Adjusted Book Value Per Share.
"With the acquisition of Madura Micro Finance , the company will become the undisputed leader among microfinance NBFCs and it would also allow strategic expansion to other geographies. With a large untapped market opportunity and demand on the stronger side along with low borrowing cost, we expect the synergies of acquisition to drive margin expansions over long term. Hence, we value Credit Access Grameen at 2.9x on FY22E Adj Book value per share and arrive at a target price of Rs 824 and recommend 'Buy' rating," Geojit has said in its research report.