Buy CreditAccess Grameen; target of Rs 577: YES Securities

YES Securities' research report on CreditAccess Grameen

CREDAG’s stand-alone PAT in Q4 FY20 was suppressed by lower securitization/assignment income, one-off expenses related to Madura acquisition and additional Covid-related provisions. Adjusting for these items, co’s operating performance was strong with PBT growth at 13% qoq and 44% yoy. Despite Covid impacting operations in March, AUM growth was solid at 11.5% qoq and 38% yoy. Negligible branch/loan officer addition led to significant reduction in Opex/AUM ratio (from 5.1% in Q3 FY20 to 4.6%). There was a material reduction in funding cost too. PAR 60 portfolio increased to 1.6% from 0.9% as of Q3 FY20, owing to loans impacted in coastal Karnataka (external interference) and in parts of Maharashtra and Karnataka (due to floods in H1 FY20) having shifted buckets. While continuing to make full provisions on PAR 60 portfolio, CREDAG made Rs829mn Covid provisions. ECL cover rose to 2.9% of AUM. During Q4 FY20, CREDAG completed 76.1% acquisition of Madura Micro Finance Ltd. (MMFL) having an AUM of Rs21bn.

Outlook

Upgrade rating from ADD to BUY with a 12m TP of Rs577. Steep stock price fall and consequent valuation de-rating (1.6x FY22 P/ABV, without factoring capital raise) discounts FY21 headwinds but doesn’t capture a sharp RoA/RoE recovery in FY22. Expect much lower liquidity and capital related challenges for CREDAG v/s peers.

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