Business News

ET Intelligence Group: The stock of CreditAccess Grameen has underperformed the benchmark and sector indices since January 19 when it declared the third quarter results, reporting pressure on the asset quality due to floods in the key market of Tamil Nadu (TN), muted customer additions and disbursements amid upgrading of core banking facilities. The stock has lost over 14% during the period compared with around 3% return in each of the S&P BSE Sensex and S&P BSE Financial Services indices amid the scheduled general elections and uncertainties over the government’s stance over loan waivers. However, the country’s largest listed microfinance lender is expected to deliver strong performance in the medium term amid normalisation of business activities in TN. Analysts have raised target prices citing business momentum in new markets, strong capital base, and efficient cost control measures.The microfinance lender operated 1,894 branches across 16 states and one union territory at the end of December 2023. Given the efforts to expand in new markets, the share of top four states including Karnataka, Maharashtra, Tamil Nadu, and Madhya Pradesh in the gross loans fell to 79.5% in the December quarter from 83.1% a year ago. 108218597The monthly disbursements fell to Rs 1,418 crore in November 2023 from Rs 1,679 crore in the previous month while customer additions dropped to 63,000 from 1,02,000 by similar comparison. The management stated that the business momentum returned to normal in December after the successful completion of the core banking project resulted in Rs 2,247 crore of disbursements and an addition of 1,20,000 customers.The lender’s gross loan portfolio increased by 31.5% year-on-year to Rs 23,382 crore in the December quarter while disbursements rose by 10.3% to Rs 5,344 crore. The gross nonperforming assets (GNPA) ratio increased by 20 basis point from the previous quarter to 0.97% due the TN flood impact. According to the management, the business and recoveries have returned to normalcy in the affected areas of the state in December. On a year-on-year basis, GNPA fell by around 70 basis points.CreditAccess maintained operating efficiency despite asset quality pressure. The cost-income ratio fell to 29.5% in the December quarter from 31.7% in the previous quarter and 36.3% a year ago. This helped in keeping the net interest margin (NIM) stable at 13.1% from the quarter ago and higher than 11.9% in the year-ago quarter.Motilal Oswal Financial Services noted in a report that the company’s robust execution has been vindicated by its resilience across various credit cycles and external disturbances. “With a strong Tier-I capital position of around 24%, the company can very well navigate any potential disruptions in the future and also capitalize on the growth opportunity over the medium term,” the brokerage said.ICICI Securities believes the stock would continue to trade at a premium valuation given its time-tested business performance to ensure above 20% return on equity (RoE) between FY24 and FY26. “We maintain BUY with a revised target price of Rs 1,950 from earlier Rs 1,600 as we roll over the estimates to September 2025, valuing the stock at 3.4 times expected book value,” the brokerage mentioned in a report.