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YES Securities
CreditAccess (Buy)
Target: ₹830
CMP: ₹613.60
CreditAccess Grameen’s performance in Q4FY21 was stronger than expectations, adjusted for Provisions related to accelerated write-offs (3 per cent/2 per cent of GLP for CAGL/MMFL) and management overlay created for second wave (1 per cent /0.4 per cent of GLP for CAGL/MMFL).
The collection efficiency has been impacted by 56 per cent due to the recent lockdowns. Management is of the view that industry could see a credit cost of 23 per cent from the second wave, much lower than the first wave. It also believes that if customer engagement starts improving from June, then there could be sufficient scope for business recovery.
In view of the second wave and the surrounding uncertainty, we cut earnings estimates sharply owing to lowering of loan growth expectation (18 per cent v/s 25 per cent earlier) and raising of credit cost assumption (3.3 per cent v/s 1.8 per cent earlier) for FY22.
Consequently, our revised RoA/RoE projections stand at 3.5 per cent/15 per cent for the current year.
The stock trades at 2.2x FY22 P/ABV, and valuation seems to factor sustained pressure on earnings for the next two quarters. CreditAccess Grameen is a best in class MFI franchise, and thus a swift peaking out of the pandemic would be a strong catalyst for the stock.
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