CreditAccess Grameen - Well poised not only to navigate the cycle but enhance its market positioning - ICICI Securities

Incrementally, collection efficiency, disbursements for August and adequate liquidity buffer suggest CreditAccess Grameen (CAGL) to be well poised to navigate the cycle better than peers. Collection efficiency sustained its improving trajectory in August'20 - standalone collections at 82% (~86% ex-Maharashtra), up from 74%/76% in June/July'20 and Madhura's (MMFL) collections increasing to 75% vs 54% / 64% in June/July'20. Borrowers making full payments at 72% vs 67% / 64% in June/July'20 for CAGL lend confidence on recovery efforts. For MMFL, borrowers paying fully remained lower at 27%, but we rest our hope with the pace of customer activation at 87% (85% for CAGL) vs 60% / 78% in June/July'20. Collections in Maharashtra (72%) and Odisha (63%) lagged overall collections in August'20. While ~15%/13% inactive customer base for CAGL/MMFL poses near-term risk on asset quality, its customer-centric business model, weekly collections and adequate provisioning buffer (210bps at consolidated level) improves visibility on earnings sustenance. Also, confidence of RoA/RoE trajectory of >4%/18% in FY22E warrants higher PB multiple of 3.2x FY22 book. Maintain BUY with a revised TP of Rs820 (earlier: Rs700).

- CAGL is once again demonstrating strong business resilience. While collections in H2 of August'20 remain static at 81%/82%, full month collections in August'20 improved to 82% from 76% in July'20. Further, effective communication about cost of moratorium and importance of payment track record resulted in decline in partial paying borrowers to 8% in August'20 (50%< Payment <100%) from 12% in July'20. As on August'20, ~15% (11% ex Maharashtra) borrowers remain inactive.

- MMFL - sharp improvement in customer activation. While full paying customers remain static at 27%, the pace of customer activation has been encouraging with inactive borrower base falling sharply to 13% as on August'20 from 40% in June'20. As a result, total portfolio under moratorium fell to 25% as on August'20 from 99%/90%/46%/36% in April/May/June/July, respectively.

- Disbursement in August'20 resumed to ~60% of pre-Covid monthly average. With 100% employees resuming office (already conducted >98% center meetings), it started disbursement in August'20 but limited to existing borrowers making on-time payments. Disbursements in August'20 stand at ~60% of pre-Covid monthly average.

- Comfortable liquidity position - CAGL's cumulative liquidity position (including sanction pipeline) remains strong at ~Rs49bn - of which cash / bank balance & liquid investments stand at ~Rs18bn (~15% of June'20 gross AuM), undrawn sanctions stand at Rs4.24bn (4% of June'20 AuM) and new sanctions in pipeline stand at ~Rs27bn (23% of June'20 AuM). Its borrowing profile is well diversified with no CP/no bonds/NCDs borrowing from mutual funds and negligible borrowing from NBFCs (only ~2%). Further, >80% of borrowing has maturity of more than two years.

- Valuation & outlook. CAGL, we believe, would still deliver RoAuM in excess of 2.5% in FY21E even if we factor in credit cost at ~3% in FY21E and and normalising to >4% in FY22E. The stock is currently trading at 3.3x/2.7x FY21/22e BVPS, respectively. Maintain BUY with a revised TP of Rs820 (earlier: Rs700). Key risk remains delay in synergies from Madhura acquisition and higher-than-expected delinquency from current in-active customer base.

Shares of CreditAccess Grameen Ltd was last trading in BSE at Rs.690.75 as compared to the previous close of Rs. 708.3. The total number of shares traded during the day was 11701 in over 1009 trades.

The stock hit an intraday high of Rs. 719.95 and intraday low of 685. The net turnover during the day was Rs. 8162767.

Source : Equity Bulls

Keywords