CreditAccess Grameen is up nearly 1% in trade today. The stock is trading at ₹914.65 per share, up ₹8.25 on the BSE.
Domestic brokerage firm Monarch Networth Capital has a "buy" rating on CreditAccess Grameen, a microfinance institution, with a target price of ₹1,315 apiece, which hints towards an upside potential of 45% from the stock's previous closing price.
Recent occurrences including the revised RBI securitization guidelines and the Maharashtra-Karnataka border dispute are unlikely to have any effect on the company's fundamentals, the brokerage said.
Given the company's strong capital position, improving asset quality, and growth revival, the brokerage maintains a positive outlook on the stock. By FY25E, it anticipates RoE to nudge up to 18–19%, justifying its premium valuations.
"The new RBI norms on securitization will unlikely impact CREDAG as it does not borrow through this route." As of H1FY23, it had 8% of its total borrowing through the direct assignment (DA) route (historically in the range of 5-10%).
"Also, given the nature of loan exposure (90%+ of loan exposure has an average duration of 2 years or more), the new regulation, according to the management, is unlikely to deter them from accessing the securitized transaction opportunity later," said Monarch Networth Capital in its equity research report, dated December 13, 2022.
Additionally, management claims that the political upheaval along the Maharashtra-Karnataka border has not affected CREDAG's business, it added.
The brokerage estimated the company's credit cost at 1.8% for FY24. Even with continuing instability brought on by political interference, it says, the impact on RoE would be in the range of 70–140 bps.
The stock trades at attractive levels of 2.5x/2.1x FY24/25 P/BV as a result of the recent stock price fall. Given its ability to deliver high ROE, the brokerage believes that current values represent a respectable entry point from a risk/reward standpoint.
In the last four months, the stock has corrected by almost 13.50%, however, it is still up by 53% in the current year so far.
On the other hand, ICICI Securities also has a "buy" call on the stock with a target price of ₹1,300 per share. The brokerage said that the company is well positioned to maintain its leadership in the MFI space, as reflected in its incremental share in MFI lending at 8% vs. an outstanding market share of 6% as of September 22.
The company also laid out its goal to become the preferred financial partner for 10 million low-income households lacking access to credit by 2025, it added.
“A two-decade experience in handling various credit cycles in the MFI space has helped CA Grameen to build a sustainable, scalable, and resilient business model. Strong post-pandemic credit demand recovery and steady improvement in asset quality reinforce our view that the MFI space is set for a strong upcycle in the coming years,” the brokerage said.
Meanwhile, the microfinancier is entering the secured lending side with home, auto, and gold loans along with SME funding, Udaya Kumar, the company's MD and CEO, told PTI.
For the September quarter, the company reported its highest-ever net profit of ₹176 crore, aided by steady business expansion and consistent loan repayment. The company posted a net profit of ₹59.7 crore in the corresponding quarter of the last fiscal.
The net interest income during the quarter rose 40% to ₹516 crore as against ₹369 crore in a similar quarter of last year. On the asset quality side, the gross non-performing asset ratio of the lender stood at 2.17% in Q2 FY23, and the NNPAs came in at 0.77% during the same period.
An average of 12 analysts polled by MintGenie have a strong 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.