Maintain BUY on CreditAccess Grameen - Accelerated write-offs dents earnings - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

CreditAccess Grameen's (CREDAG) consolidated 4QFY21 PPOP growth (93% YoY) was above our expectations, largely on account of higher other income (direct assignment - INR0.9bn). Disbursements continued the strong momentum (42%/3% YoY/QoQ) with improving collection efficiency (~94% excluding arrears in March'21). CREDAG took accelerated write-offs of 9% (annualised), bringing down GS-III to 4.43% with aggregate ECL at 5%, in line with its conservative risk recognition and provisioning policy. We revise our FY22/FY23 earnings estimates downwards by 0.4%/3.0% due to expected moderation in loan growth and marginal higher credit costs. We maintain BUY with a revised TP of INR 813 (from INR 819 earlier). Our assigned multiple, we believe, is reflective of CREDAG's high RoE potential, relatively conservative approach to the business as well as inherent business risks.

Disbursals sustain momentum; second wave likely to play spoilsport: Disbursements sustained the momentum with 42%/3% QoQ growth to INR42.3bn. New customer acquisitions were largely from Gujarat, Bihar, UP, Tamil Nadu, Kerala, and Rajasthan. The average outstanding of the borrowers increased to INR34.7k (17.4% YoY). However, the second wave of the pandemic is likely to impede the growth momentum in 1QFY22.

Accelerated provisions fortifying COVID buffer, likely to moderate: In line with its conservative NPA policy, CREDAG took accelerated write-offs of INR2.8bn (9% annualised), largely due to manifestation of the back-book stress. Non-tax provisions remained elevated at INR2.5bn (~8% annualized), bringing ECL to 5% (including 1% COVID buffer). It has provided for 69% PCR for restructured assets (~0.73% of loans). We build LLPs of 2.7% over FY22-FY23E, with upward revision of 10bps.

Stress easing in standalone entity; MMFL stress yet to ease: CAGL's PAR-60 halved to 3.5% during Q4, with increase in collection efficiency by ~300bps during the same period. However, MMFL's asset quality witnessed deterioration with PAR-60 increasing from 5.6% in 3QFY21 to 6.7% and collection efficiency at 90%.

Shares of CreditAccess Grameen Ltd was last trading in BSE at Rs.616 as compared to the previous close of Rs. 608.5. The total number of shares traded during the day was 14636 in over 1348 trades.

The stock hit an intraday high of Rs. 650 and intraday low of 605. The net turnover during the day was Rs. 9073472.

Source : Equity Bulls

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