Maintain BUY on CreditAccess Grameen - Micro-credit stress playing out - HDFC Securities

Mr. Krishnan ASV, Institutional Research, HDFC Securities

At a consolidated level, CREDAG reported a net loss, on the back of a sharp rise in provisions. While disbursals saw a sharp uptick and the improvement in collection efficiency sustained (~91% excluding arrears in December), the manifestation of sticky back-book stress (implied PAR 60 of ~14% on the portfolio that is more than 6 months old) was also evident. However, at a consolidated level, CREDAG held an ECL cover of ~5.7% of loans, vs. overall GS-III of 6.1%, indicative of a fortified balance sheet. We believe current stress is not entirely unexpected, as is in fact, characteristic of the event-driven stress that micro-credit is associated with. We maintain BUY with a revised target price of INR 814. Our assigned multiple, we believe, is reflective of CREDAG's high RoE potential, relatively conservative approach to the busines as well as inherent business risks.

Sticky back book stress forming: Despite clocking a sustained improvement in collection efficiency (standalone) from 88% in September to 91% in December (96% including arrears), PAR 60 remained sticky at 7% and PAR 90 inched up to 5.2%, on the standalone portfolio. Further, disbursals between June and December accounted for ~49% of the standalone portfolio which had a PAR 60 of ~10bps, implying sticky stress in the back book. We now build GNPA (PAR 60) of 4.8% in FY21E.

Jump in provisions dents earnings: Non-tax provisions surged 5x/3x YoY/QoQ to ~INR 2.8bn (9.4% annualised) and CREDAG wrote-off ~INR 1.1bn including accelerated write-offs of INR 847mn. At a consolidated level, CREDAG holds an ECL cover of 5.7% vs. PAR 60 of 6.1%. We build LLPs of 3.4% over FY21-23E, an upward revision of 25bps vs. our earlier estimates.

Revival in disbursal growth: Consolidated disbursals grew ~38/184% YoY/QoQ to ~INR 40bn. Consequently, AUMs grew ~39/10% YoY/QoQ, reaching ~INR 123bn, led by a growth in the IGL segment. Average outstanding per borrower (group loans) grew ~13.8/10% to INR 35.4bn. We model an AUM growth of ~22.3% over FY21-23E.

Shares of CreditAccess Grameen Ltd was last trading in BSE at Rs.720.7 as compared to the previous close of Rs. 732.95. The total number of shares traded during the day was 8145 in over 678 trades.

The stock hit an intraday high of Rs. 740 and intraday low of 711.6. The net turnover during the day was Rs. 5955061.

Source : Equity Bulls

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