CreditAccess may navigate the choppy MFI waters better

CreditAccess Grameen has gained nearly 17% on bourses in the four trading sessions since declaring its third quarter numbers last Friday. The uptick was despite the sequential decline in loan disbursements and net loss due to higher provisioning. The country's largest microfinance lender has indicated a recovery in the operating parameters beginning from the March quarter with improving business momentum and early recognition of risk, which elevated provisioning in the December quarter. Analysts have revised the FY25 earnings estimates downwards by over 30% and some of them have cut the 12-month target price by 6-7%.

Between April and November 2024, the microfinance lender displayed a rising asset quality stress as reflected in the proportion of the portfolio at risk (PAR) in the total loan portfolio due to higher delinquencies and tightening of loan underwriting norms after the RBI raised concerns over the small ticket unsecured consumer loans. The PAR ratio increased to 1.34% from 0.2% during the period. Since December, however, it has shown improvement. As of January 20, PAR ratio has eased to 0.84%. The company expects it to return to a normalised level of 0.2-0.3% by the June 2025 quarter.

The lender’s loan portfolio shrank to Rs24,463 crore in November from Rs26,375 crore at the beginning of the current fiscal year due to accelerated write-offs starting from July. In the December quarter, it undertook a write-off worth Rs 376.7 crore, taking the total write-off for nine months to Rs606.1 crore. As a result, the credit cost (provision and write-off) as a percentage of loan book shot up to 5.4% in the nine months to December from 1.4% in the year-ago period.



This phase now appears to be behind for the company as its loan book improved to Rs24,810 crore in December and continued to show momentum in January. In addition, after showing volatility over a period of four months to November, the borrower additions have shown improvement in December at 72,028, marching past the 71,708 in May.

The proportion of overleveraged borrowers has also started falling. The share of customers who have borrowed from four or more lenders in the loan portfolio fell to 18.8% in December from 25.3% in August. This is expected to reduce stress on asset quality.

The company’s management has lowered the FY25 guidance for the second time. It now expects loan growth of 7-8% from the earlier guidance of 8-12% growth. Credit cost is expected to increase to 6.7-6.9% from the earlier expectation of 4.5-5%. The return on assets is also estimated lower at 2.3-2.4% from 3-3.5% anticipated earlier. On the other hand, the lender expects to keep the net interest margin at 12.8%-13%, similar to 13% seen during the nine months to December.

Elara Securities (India) has cut the earnings estimate for CreditAccess by 30% for FY25, 9% for FY26 and 2% for FY27 citing industry headwinds and delayed recovery. It has cut the price target by 6% to Rs1,042. The stock was traded at Rs1,067.9 on the BSE at the end of Thursday’s session.