ICICI Securities

CreditAccess Grameen (Buy)

CMP: ₹464.5

Target: ₹530

Key facts from FY19 results: a) Better-than-expected PAT at ₹320 crore versus management guidance of ₹275 crore; b) management utilising extra profits to strengthen balance sheet by adopting a conservative approach while calculating provision under ECL method; c) despite a challenging H2FY19 for most NBFCs, CAGL sustained robust AuM growth at 44 per cent y-o-y; d) Odisha exposure is only of ₹40 crore.

CAGL has always maintained diversified funding sources with long tenure rather than switching sources in tandem with changing interest rate cycle. Currently, it has relationship with 30 commercial banks including large private sector banks, three financial institutions (long-term), and eight FIIs (long-term). The share of NBFC funding stands at only 3 per cent of total funding. Further, CAGL has no commercial papers and bonds/NCDs from mutual funds.

We continue to believe CAGL’s business fundamentals are intact and the RoE trajectory would continue to improve, going forward. Management guides for 30 per cent AuM CAGR over the next five years with PAT guidance of ₹425 crore/450 crore in FY20E, implying 30 per cent/40 per cent earnings growth during the period.