CreditAccess Grameen shares rally 7%; Goldman Sachs sees 25% upside on stock, says this

Foreign brokerage Goldman Sachs said CreditAccess Grameen is riding the up-cycle well and that its diversification would improve earnings visibility. The broking firm has suggested a buy rating on the stock with a price target of R 1,788, suggesting a 25 per cent upside over its Wednesday's closing price of Rs 1,428.50. The stock market was shut on Thursday on account of Eid-ul-fitr.

Following the development, CreditAccess Grameen shares climbed 6.96 per cent to hit a high of Rs 1,528 on BSE. The stock is down 6.45 per cent in 2024 so far but up 58.26 per cent for the one-year period.

The CreditAccess Grameen stock trades at 2.7 times book value and 12 times FY25 earnings per share, which are bout 27 per cent discount to NBFCs within Goldman Sachs coverage.

"We value CREDAG at 15 times FY25E EPS (implied 3.4 times P/B), using our relative P/E framework (RoRWA x Leverage, which also reflects superior operating metrics with PAT CAGR at 21 per cent (covered NBFC average at 18 per cent) over FY24-26E, and average ROE of 24 per cent (covered NBFC average at 15 per cent)," it said.

CA Grameen (CREDAG) is a non-bank-finance-company focused on the micro-finance business (MFI), predominantly in the rural areas of India. CreditAccess Grameen  said the company is well positioned to tap into an expanded MFI lending-TAM and is diversifying the customer base/loan book via cross-sell/up-sell opportunities that should drive more predictable and profitable lending growth over next few years with reduced cyclicality, if executed well.

"CREDAG has demonstrated a good track record through-the-cycles, and we forecast a healthy 21 per cent PAT CAGR (GS coverage at 15 per cent) over FY24-FY26E on strong lending CAGR of 24 per cent (vs system lending CAGR at 13 per cent) and continued superior profitability with avg. ROAs of 5.6 per cent on: (1) diversified loan book, (2) market share gains from existing/new geographies, and (3) maintaining competitive edge on industry-leading credit costs and operating efficiency. We are ahead of VA consensus by 6 per cent on FY25E," GS said.

Goldman Sachs said the MFI sector has seen good growth and a rebound in profitability post Covid. It estimates an expansion of MFI-TAM by 50 per cent to $136 billion (FY25E) as the RBI liberalised the MFI sector in Oct 2022. This is in-line with our constructive view on commercial retail that includes MFIs (compared to consumer retail), given better growth drivers, improved profitability and asset quality outlook, it said.