CreditAccess Grameen - Customer activation trend shows resilience - ICICI Securities

CreditAccess Grameen's (CAGL) Q1FY21 result is characterised by strong core operating performance (standalone PPoP up 37% YoY), focus on strengthening balance sheet (contingency buffer of ~2.2% of consolidated AuM) and cautious approach towards growing balance sheet (to our liking fresh disbursements fell 98% YoY/QoQ). Further, July'20 collection efficiency at 76%, of which ~64% customers are paying fully, reflects its strong business resilience and strategically collected interest on moratorium (April/May'20) along with June'20 collections to eliminate imminent risk of collection disruption in case of higher EMIs due to moratorium. Though the merger brings in synergy, non-paying customers at 17% and Madura's lower collection poses near-term risk. However, strong execution track record, weekly collection model, improving customer activation rate and ability to raise funds at competitive rates, would ensure CAGL emerging stronger in post Covid-19 era. Maintain BUY.

- Strong operating performance. CAGL delivered PAT at Rs636mn in Q1FY21 driven by strong operating performance with - 1) standalone PPoP growing by 37% YoY driven by cost flexibility (opex down ~18 QoQ), 2) margin expansion (~60bps QoQ) and 3) support of securitisation income of Rs200mn. Notably, it continued to demonstrate its ability to raise funds at competitive rates even during the most challenging period, it raised ~Rs10bn in Q1FY21 with marginal cost of borrowing at 8.7% (lower by 70bps) than blended cost of borrowing at 9.4%.

- Collection efficiency and customer activation trend encouraging. Collection efficiency improved sharply to 74%/54% in June'20 for CAGL/MMFL, respectively, backed by its strong customer connect and weekly collection model. However, it remained static in July'20 at 76%/64% due to lower collection in urban pockets of Maharashtra, Tamil Nadu and Karnataka. Collection efficiency (ex-Maharashtra) stands at >80%. Customer activation, too, remained encouraging at 83%, of which ~64% of customers are paying fully, while ~19% are paying partially and ~17% customers are still under full moratorium. Management highlighted that by the end of August'20, it expects moratorium book to fall to 4-5%.

- Contingency buffer at ~2.2% of consolidated AuM. Management remained committed in building adequate Covid-19 related contingency buffer with it providing ~Rs1.5bn during Q1FY21; contingency buffer stands at Rs2.5bn or ~2.2% of consolidated AuM. Total provisioning cover on moratorium book as of June'20 stands at ~18%/9% for CAGL/MMFL, respectively.

- Cautious approach in fresh disbursements. Disbursements resumed in the last week of June and gradually ramped up in July'20 with cumulative disbursement of Rs5.7bn June/July'20, which is ~72% of July'19 disbursements. Fresh disbursements over medium term would be strictly to existing customer base with good payment track record and people who have cleared all dues.

Shares of CreditAccess Grameen Ltd was last trading in BSE at Rs.547 as compared to the previous close of Rs. 531.35. The total number of shares traded during the day was 13266 in over 544 trades.

The stock hit an intraday high of Rs. 557.9 and intraday low of 536.1. The net turnover during the day was Rs. 7372209.

Source : Equity Bulls

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