CreditAccess Grameen cracks 12% on heavy volume amid asset quality concerns

Thus far in the calendar year 2024, the market price of CreditAccess Grameen has plunged 46 per cent, as compared to 10 per cent rally in the BSE Sensex.

Shares of CreditAccess Grameen slipped 12 per cent to Rs 870 on the BSE in Friday’s intra-day trade in an otherwise firm market amid heavy volumes on asset quality concerns. The stock of the microfinance company had hit a 52-week low Rs 860.10 on November 21, 2024. 

 

At 09:38 am; CreditAccess Grameen stock was trading 8 per cent lower at Rs 911.90, as compared to 0.40 per cent rise in the BSE Sensex. The average trading volumes on the counter rose over three-fold with a combined nearly 1.3 million equity shares changing hands on the NSE and BSE.

 

According to media reports, Goldman Sachs has downgraded shares of CreditAccess Grameen to "Sell" from its earlier rating of "Buy". The brokerage cut its price target on the stock to Rs 564 from Rs 1,426 earlier. Goldman Sachs believes that the earnings visibility for the company is clouded amidst asset quality concerns and that the de-rating for the stock is structural in nature, according to reports.

 

 

CreditAccess Grameen Limited is a non-deposit accepting NBFC-microfinance institution (MFI) registered with the Reserve Bank of India (RBI), dedicated to providing microfinance services primarily to women organised into Joint Liability Groups.  By leveraging its distribution channels, the company also offers a range of financial products and services tailored for its members.

 

Meanwhile, thus far in the calendar year 2024, the market price of CreditAccess Grameen has tanked 46 per cent, as compared to 10 per cent rally in the BSE Sensex.

 

In the September quarter, the company's asset quality weaken with GNPA/NNPA deteriorated 100bp/30bp QoQ to 2.5 per cent/0.8 per cent. The company observed that delinquency was the highest in customers with the lowest vintage and having a higher velocity of loans. Annualized credit costs rose to 6.5 per cent (PY: 1.7 per cent and PQ: 2.6 per cent). Management raised its credit cost guidance to 4.5 per cent-5.0 per cent (vs. 2.2-2.4 per cent earlier) for FY25 in anticipation of provisions for slippages into higher buckets.

 

The management said when compared with NBFC industry provisioning policy, the company is holding additional Rs 102 crore on account of our early recognition and higher provisioning rates. This will help the company to recognize 70-75 per cent of the current asset quality stress in FY25 instead of deferring it to the next financial year, the management said.

 

Given the short-term nature of microfinance loans and timely calibration by industry, the management believes the credit cycle to be transient in nature. They remain confident of the company’s medium-term growth outlook, aiming to reach Rs 50,000 crore mark by FY28 as guided earlier through a combination of both Microfinance and Retail Finance businesses, while upholding commitment to maintaining best-in-class asset quality.

 

Bihar, Madhya Pradesh, Maharashtra, and West Bengal were hit by floods, which impacted delinquencies. However, things have improved, and the company expressed no concerns about the unseasonal rainfall in October 2024. Defaults are higher among new customers acquired from other peer MFIs over the past two years. Delinquencies are elevated as these customers were added over the last two years, and the company does not anticipate any significant recoveries from this pool of defaulting customers, Motilal Oswal Financial Services said in Q2 result update.

 

The company’s robust execution has been vindicated by its resilience during various credit cycles and external disturbances. Despite the sector staring at near-term headwinds because of the buildup of customer leverage, the brokerage firm expects CreditAccess Grameen to exhibit much higher resilience compared to its peers.