CreditAccess Grameen rallies 9% on robust earnings, rise in FY24 guidance: Time to buy?

Shares of CreditAcess Grameen surged 9 percent on October 23 on robust Q2 earnings and positive FY24 guidance revision. The company’s net profit nearly doubled to Rs 347 crore in the September quarter, driven by higher loan sales and resultant income and total income surged 53 percent on-year on the back of a surge in net interest income (NII).

At 9:57am, CreditAccess Grameen Bank shares were trading at Rs 1,519.00 on the National Stock Exchange, up 9.2 percent from the previous closing. So far this year, the stock has rallied 68.44 percent, outperforming benchmark Nifty 50.

With a strong capital position, the CreditAccess Grameen can very well navigate any potential disruptions in future and also capitalise on the growth opportunity over the medium term, analysts said.

For the quarter ended September 2023, the company’s loan book fattened and the borrower base grew across 1,877 branches. Its collection efficiency also saw an improvement. Given the robust numbers so far in 2023, the company revised the FY24 loan growth guidance to 24-25 percent, from 20 percent earlier. The net interest margin (NIM) guidance has also been raised to 12.7-12.8 percent.

Also Read | Creditaccess Grameen Bank net profit nearly doubles to Rs 347 cr

Outlook

According to analysts at Motilal Oswal, CreditAccess Grameen is primed to dominate the segment by providing the lowest cost organised financing, improving operational efficiency through continuous technology enhancement, and integrating risk management in every process to drive superior asset quality and lower credit costs.

The domestic brokerage believes that CreditAccess Grameen will continue to deliver robust return ratios, aided by a strong underlying business model. The stock is inexpensive at current valuation, it noted as it put a ‘buy’ rating on the stock with a revised target price of Rs 1,670 per share. “As leverage increases over the course of the year, NIM will moderate,” said Motilal Oswal in its report.

CreditAccess Grameen management has increased credit cost guidance to 1.6-1.8 percent. Return on Assets (RoA), a metric that indicates a company’s profitability in relation to its total assets, guidance has also been revised upwards. Return on Equity (RoE) guidance has also been raised.

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“In the medium to long term, it should be able to maintain steady state RoA of 5.4-5.6 percent and RoE of 24-25 percent,” said Motilal Oswal.

Yes Securities believes that attributes like high customer retention/borrower vintage, lower field attrition, industry-best loan processes, policies and pricing, stronger quality control and audit mechanisms, etc. drive CreditAccessGrameen’s sturdier growth and profitability.

The brokerage assigned a ‘buy, rating to the stock with a target price of Rs 1,825 as it upgraded earnings estimates by 7-9 percent for second consecutive quarter with profitability sustaining at higher levels.

Also Read | CreditAccess Gr Standalone September 2023 Net Sales at Rs 1,246.94 crore, up 85.71% Y-o-Y

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