CreditAccess Grameen - Elevated credit cost transient in nature; earnings to normalise Q4FY21 onwards - ICICI Securities

CreditAccess Grameen's (CAGL) Q3FY21 financial performance must be seen with respect to the management's conservative stance in upfronting the covid-related stress, and its readiness to paddle the growth cycle Q4FY21 onwards as it derives comfort from ~99% collection for loans disbursed between June-Dec'20. Conservative NPL recognition policy (NPL tagging at 60 DPD vs 90 DPD for industry) led to a spike in provision at Rs2.75bn and subsequently it had to derecognise interest income of Rs0.62bn. Combination of this, resulted in it reporting net loss of Rs0.8bn; however, management believes provisions in Q3FY21 are transient in nature and hence, earnings should normalise Q4FY21 onwards, thus, guiding for full year RoA of ~2%. Further, based on the current roll back run rate and collection trends, it expects provision write-back in H1FY22. Maintain BUY. Key risks - A) lower recovery in PAR portfolio and B) delay in growth recovery.

- FY21e AuM growth may surpass earlier guidance of 10-12%; comfortable liquidity position and adequate capital will drive growth. Deriving confidence from encouraging collection of ~99% for new loans disbursed since June'20 and economic activity revving at fast clip especially in rural areas, the management expects AuM growth in FY21 to surpass the earlier guidance of 10-12% and may clock 20%+ growth in FY22. CAGL's disbursements in Q3FY21 were up 35% YoY driving 15% YoY AuM growth. Incremental disbursements in Q3FY21 were mostly towards IGL loans as reflected in its share increasing to 92% in Dec'20 from 85% in Dec'19. Its comfortable liquidity of Rs15bn (~13% of assets) with declining marginal cost of borrowing reflects its ability to raise funds at competitive rates. Further, CAR at 31% will support its ambitious growth plan for the next couple of years.

- Collections and recovery remained on track; reinforces our belief of provisions peeking out in Q3FY21. CAGL's collection (91% ex-arrears) as of Dec'20 is in-line with the management anticipation with PAR excluding Maharashtra (~9%) reaching near normalcy. Even in Maharashtra, PAR 0 fell from 29% in Sep'20 to 19% in Dec'20. Notably, non-paying customer pool now stands at only 5%, down from 8% in Sep'20. Similarly, collection trend in MMFL's portfolio is also in-line with the expectation at 86% in Dec'20 with non-paying customer pool falling to just 2.2%. While collections remained on track, early risk recognition and conservative provision policy resulted in significantly higher credit cost of Rs2.75bn. However, management believes provisions have peaked out at current level and from Q4FY1 they should normalise to pre-covid level of 75-90bps annually.

- Proforma GNPL stands at 6.1% against which it carries ECL provision of 5.7%. With business momentum approaching normalcy at an accelerated pace, it conservatively opted to recognise most covid-related stress in Q3FY21 and set the platform for normalised earnings Q4FY21 onwards. As a result, profroma GNPL (recognised @60+ DPD) increases to 6.1% and it shores up ECL provison to 5.7% as of Dec'20, had it followed the industry norms proforma GNPL would have been 5.1%. It has also written/off loans worth Rs1.1bn, mostly towards legacy portfolio crossing 180 DPD in coastal Karnataka and Southern Maharashtra. Factoring elevated credit cost in 9MFY21, we trim our FY21e earnings estimate by ~32%.

Shares of CreditAccess Grameen Ltd was last trading in BSE at Rs.692.75 as compared to the previous close of Rs. 710.95. The total number of shares traded during the day was 9012 in over 1002 trades.

The stock hit an intraday high of Rs. 739 and intraday low of 690.5. The net turnover during the day was Rs. 6296902.

Source : Equity Bulls

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