Motilal Oswal Financial Services has initiated coverage of non-banking financial company-micro finance institutions with a focus on CreditAccess Grameen (CREDAG), Fusion, and Spandana. The three entities collectively account for a 27 percent share of the NBFC-MFI loan book.
Following a recent cyclical downturn in the sector, the brokerage is confident about the strong growth and profitability prospects of CREDAG, Fusion Micro Finance, and Spandana. The optimism stems from their solid positioning, which enables them to capitalise on the recovery.
CREDAG, based in Bengaluru, has a predominantly rural focus, which accounts for over 80 percent of its gross loan portfolio and demonstrates robust process discipline. Motilal Oswal anticipates an impressive compounded annual growth rate (CAGR) of 23 percent for its assets and 32 percent CAGR for profit after tax over the period from FY23 to FY25.
With a strong emphasis on technology infrastructure to drive operational efficiencies, CREDAG is expected to achieve a return on assets of 4.9 percent by FY25E. Based on these positive factors, Motilal Oswal initiated coverage on CREDAG with a ‘buy’ rating and a target price of Rs 1,550, premised on a 3.2x FY25E price-to-book value (P/BV) multiple.
Fusion, the second-largest NBFC-MFI, enjoyed a 43 percent CAGR in assets under management to about Rs 9,300 crore in FY23 from levels in FY18, surpassing the sector’s average growth of 21 percent. With a robust rural presence, representing about 93 percent of its loan portfolio, Fusion Micro- Finance is well-positioned for continued growth.
The financials
Projections indicate a 28 percent CAGR for assets and 37 percent CAGR for profit after tax for the period from FY23 to FY25. Fusion Micro Finance is expected to achieve a RoA/RoE of 5.0%/22%. Motilal Oswal commenced coverage on Fusion with a ‘buy’ rating and a target price of Rs 720, based on a 2.0x FY25E P/BV.
Spandana Sphoorty Financial, with rural loans accounting for 87 percent of assets, is poised for 34 percent CAGR from FY23 to FY25. It is expected to transition from consolidation to a phase of substantial expansion under a new management, which has navigated various disruptions in previous quarters.
Presently, Spandana Sphoorty Financial trades at 1.5x FY24E P/BV, and analysts project a RoA/RoE of 4.3%/15% in FY25E. The brokerage initiated coverage of Spandana Sphoorty Financial with a ‘buy’ rating and a target price of Rs 865, based on a 1.5x FY25E P/BV multiple.
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