Target: ₹1,788

CMP: ₹1,471.10

CreditAccess Grameen is a non-bank-finance-company focused on the micro-finance business (MFI), predominantly in the rural areas of India. The company is well positioned to tap into an expanded MFI lending-TAM and is diversifying the customer base/loan book via cross-sell/up-sell opportunities that should drive more predictable and profitable lending growth over next few years with reduced cyclicality, if executed well.

CreditAccess has demonstrated a good track record through-the-cycles, and we forecast a healthy 21 per cent PAT CAGR over FY24-FY26 on strong lending CAGR of 24 per cent and continued superior profitability with avg. ROAs of 5.6 per cent on: diversified loan book, market share gains from existing/new geographies and maintaining competitive edge on industry-leading credit costs and operating efficiency.

The stock currently trades at 2.7x P/B and 12x P/E FY25 which is at a discount of 27 per cent to NBFCs within our coverage on P/E. We value CreditAccess at 15x FY25E EPS (implied 3.4x P/B), using our relative P/E framework (RoRWA x Leverage (Exhibit 68) which also reflects superior operating metrics with PAT CAGR at 21% (covered NBFC avg. at 18 per cent) over FY24-26, and avg. ROE of 24 per cent (covered NBFC avg. at 15%). Initiate at Buy with a TP of Rs1,788