Buy CreditAccess Grameen; target of Rs 1,950: ICICI Securities

ICICI Securities is bullish on CreditAccess Grameen has recommended buy rating on the stock with a target price of Rs 1,950 in its research report dated July 20, 2024.

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July 25, 2024 / 12:33 IST

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ICICI Securitie's research report on CreditAccess Grameen

While Q1 has always been a weak quarter, Q1FY25 was more important due to several adverse news flow especially around asset quality and stress build up along with seasonality. For CA Grameen, too, it was no different with seasonality impacting Q1FY25 financial performance as reflected in 2% QoQ decline in AUM, 50bps drop in collections and 20bps QoQ increase in credit cost. However, its core operating performance continued to be strong as reflected in RoA at >5% and RoE at >20% for the sixth consecutive quarter. Notably, management attributed deterioration in asset quality to seasonality and highlighted that it does not foresee further deterioration in collection trend. Hence, despite weak Q1FY25, it maintained full year credit cost guidance of 2.2-2.4% vs 2.6% in Q1FY25.

Outlook

CA Grameen’s business resiliency reflects in only 50bps drop in collections to 97.8% during Q1FY25 vs 98.3% in Q4FY25 and best-in-class return ratios with RoA at >5% and RoE at >20% for the sixth consecutive quarter. This is despite several industry-level headwinds like operational limitation due to elections and heatwave, increasing stress in states like RJ, Kerala and stress building up due to overleveraging in some areas, third-party loan utilisation issue etc. However, management highlighted it has pre-empted some of these industry trends and has already factored in those while sharing FY25 guidance during Q4FY24 concall. Hence, despite a seasonally weak quarter, it maintained its FY25 guidance at – a) AUM growth of 23- 24%, b) credit cost at 2.2-2.4% vs 2.6% in Q1FY25, implying steady improvement in 9MFY25 and c) RoE at >20%. Maintain BUY with an unchanged TP of INR 1,950, valuing the stock at 3.4x Sep’25E. BVPS.

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