Emkay Global Sees Potential in CreditAccess Grameen, Targets Rs 1750

CreditAccess Grameen Sees Improving Earnings Trajectory

Emkay Global Financial's latest research report highlights a positive outlook for CreditAccess Grameen (CREDAG), with the company firmly on an improving earnings trajectory. The report notes that Profit After Tax (PAT) stood at Rs3.4bn, with Return on Assets (RoA) at 4.4%, primarily driven by better margins and moderating Losses on Loans and Advances (LLP). Notably, Asset Under Management (AUM) growth has improved to 14% Year-over-Year (YoY), with retail finance gaining strong traction, accounting for 18% of the overall AUM.

The company expects overall AUM growth to accelerate further to 20-25% in the near term, with Microfinance Institution (MFI) growth turning positive as stress eases. Additionally, margins are expected to improve due to lower interest reversals and continued moderation in Cost of Funds (CoF). The management anticipates steady improvement in asset quality, with early bucket collection efficiency improving across most states. However, it guides for credit cost at 3-4% in FY27, due to the change in the Expected Credit Loss (ECL) model and potential spill-over from macro-dislocation.

Emkay Global Financial Revises Earnings Estimates

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Factoring in the improving growth/margin trajectory and moderating credit cost, Emkay Global Financial has revised its earnings estimates for CreditAccess Grameen. The research firm now expects Return on Assets to improve to 4.5-5% over FY27-29E from 2.6% in FY26, with earnings revised by 12% for FY27E.

Outlook and Recommendations

Given the positive outlook for CreditAccess Grameen, Emkay Global Financial retains its BUY rating while raising its Target Price by ~13% to Rs1,750 from Rs1,550, valuing the company at 2.4x FY28E Adjusted Book Value (ABV). Existing investors are advised to be watchful of company sell-out, which may have a bearing on the near-term stock performance.

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Note: The AUM growth comparison table highlights the improvement in Asset Under Management growth for CreditAccess Grameen.