 "Micro lenders turn the page with banking licences")
Shares of CreditAccess Grameen (CAG) rallied 6 per cent to Rs 982.25 on the BSE in Wednesday’s intra-day trade, surging 10 per cent in past three days after the Insurance Regulatory and Development Authority of India (Irdai) granted certificates of registration to CreditAccess Life Insurance. CAG is the largest microfinance institution of India, which has the largest microfinance market share in the world.
On Friday, March 31, 2023, CAG announced that it has completed three Direct Assignment transactions aggregating to Rs 936.63 crore and a PTC transaction of Rs 98.77 crore during the month of March 2023. During Q4FY2023, the company raised total funds worth Rs 5,840.09 crore through Term loans, NCDs, MLD, ECBs, Direct assignments & PTC.
CAG is niche player with sustained market leadership and consistent performance across cycles gives confidence on robust business model. Analysts at ICICI Securities believe CAG is well positioned to capture huge untapped opportunity in MFI space via deeper penetration in new, existing geographies and increase in customer base. Anticipated healthy earnings growth at 52 per cent CAGR in FY22-25E and RoA at around 4 per cent are expected to drive valuations, it added. The brokerage firm initiated coverage on the stock with a BUY recommendation and a target price of Rs 1,100 per share.
Also Read
“We expect industry AUM to grow at a healthy pace led by substantial untapped opportunity, favourable regulatory changes, new borrowers accretion with geographical expansion and increase in ticket size,” analysts at brokerage firm said.
CAG’s entry in asset backed loan segment to aid business growth. Share of non-micro book to increase to around 10 per cent in next four to five years. Expect overall AUM to grow at 20-25 per cent CAGR in FY23-25E. Relatively lower yields (at ~20 per cent vs. ~22-25 per cent for peers) & removal of interest cap to improve NIMs ahead (management guidance at ~12 per cent, it added.
According to rating agency, ICRA, CAG’s consolidated portfolio of Rs 17,786 crore, as of December 2022, is the highest in the non-banking financial company – microfinance institution (NBFC-MFI) industry. ICRA expects CAG’s earnings performance to improve steadily going forward, with the moderation in the credit costs and the improvement in the portfolio yields in a steady state environment.
“ICRA takes note of the company’s significant rural presence and its predominantly weekly/bi-weekly collection model, which aids better client engagement levels. The revised guidelines for the microfinance industry have provided the players, including CAG, with better pricing ability in view of the underlying risks and has also broadened the target segment,” the rating agency said in rationale.
