CreditAccess Grameen - Collections moderated but customer activation remains encouraging - ICICI Securities

CreditAccess Grameen's (CAGL) Q2FY21 collections moderated a bit with Oct'20 collections remaining flat at 89% vs 88% in Sep'20 owing to lower collections in Maharashtra at 81%; however, improving customer activation will ensure it reaches normalised collection by Dec'20. While ~8% borrowers have not paid Sep'20 dues, of which ~24% have paid in Oct'20 for CAGL, borrowers not paying since moratorium stand at ~2.5%. It remained focus on strengthening balance sheet (contingency buffer of ~3.5% of AuM & liquidity at ~15% of assets) and adopted cautious approach in growing balance sheet during Q2FY21, with improving business activities & collections it started acquiring new customers from Oct'20. Given disbursements in Oct'20 reaching pre-Covid level, it expects lower double digit AuM growth in FY21E. Adequate capital, strong liquidity & contingency buffer and improving customer activation rate will ensure CAGL emerges stronger in post Covid-19 era. Maintain BUY with a revised target price of Rs850 (earlier: Rs820) as we factor in capital infusion of Rs8bn in Oct'20.

- Balance sheet strengthening continues as reflected in further provisioning towards Covid-19 and capital raising of Rs8bn via QIP. CAGL's PAT in Q2FY21 grew 23% QoQ (down 23% YoY) mainly driven by ~53% QoQ decline in provisions to Rs0.6bn vs Rs1.4bn in Q1FY21. Net revenue fell 14% QoQ on account of - A) excess liquidity on balance sheet resulting in lower asset yields and B) ~5% QoQ decline in AuM. It continued strengthening its balance sheet as reflected in additional ~Rs0.9bn Covid-related provision, taking cumulative contingency buffer to 3.5% of AuM, and liquidity at ~15% of assets. Further, its ability to raise funds at most competitive rates reflects lender's support and its business resiliency.

- AuM growth in Q2FY21 remained muted but with improving outlook, it expects lower double-digit growth in FY21E. During H1FY21, it remained cautious in growing AuM and restricted disbursements to only needy borrowers. Even in Q2FY21, though fresh disbursement was up 3.5x QoQ, it was mainly towards existing customers from Kendras paying 100% on-time installments. However, with improving business activities especially in rural (~82% borrowers based in non-urban area) areas and encouraging customer activation rate, it accelerated disbursements in Oct'20 and started acquiring new borrowers. With disbursements in Oct'20 reaching pre-Covid level, it expects lower double digit AuM growth in FY21E.

- Collection efficiency and customer activation trend encouraging. Collection efficiency improved to 89% in Oct'20, but pace moderated sharply due to lower collections in Maharashtra at 81%. Customer activation remained strong with non-paying borrower's pool declining to 8% in Sep'20, of which, ~24% borrowers have paid in Oct'20 and only ~2.5% borrowers are not paying since moratorium. Despite encouraging collection and customer activation, it expects Covid-related credit cost to remain at 3.75-4%.

Source : Equity Bulls

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