CreditAccess Grameen shares tumble 12% on Goldman Sachs, Nomura downgrades; here are target prices

Shares of CreditAccess Grameen tumbled 12 per cent in Friday's trade as a couple of global brokerage namely Goldman Sachs and Nomura downgraded the microfinance company's rating, citing growth asset quality concerns. Nomura India suggested a target price of Rs 850 for CreditAccess Grameen while Goldman Sachs reportedly sees the stock as low as Rs 564 against Rs 1,426 earlier.

The derating is structural in nature rather than cyclical, Goldman Sachs said adding i was negatively surprised by the accelerating decline in asset quality in Q2. On Friday, the stock fell 11.84 per cent to hit a low of Rs 870. 

Goldman Sachs expects a further buildup of stress due to over-leveraging in the industry. Nomura India noted that CreditAccess Grameen's management revised its GLP growth guidance to 8-12 per cent from 23-24 per cent, tapered its return on equity (RoE) targets to 12-14 per cent from 23-23.5 per cent and increased credit cost expectations by 230-250 bps for FY25. Credit cost at 7 per cent in Q2 against 2.8 per cent in Q1 was higher than Nomura's 5 per cent estimate, and driven by increase in delinquencies across buckets and rising write-offs, it said.

Nomura India is cautious on NBFC as a sector due to asset quality concerns, which in-turn would affect growth levels. Out of nine NBFCs under its coverage, Nomura India said it witnessed a further gradual moderation in YoY asset under management (AUM) growth in Q2FY25 against June quarter. Despite a controlled opex growth, pre-provision operating profit PPOP growth declined, it said adding that asset quality also deteriorated and credit cost inched up. 

The brokerage has preference for Shriram Finance, Aadhar Housing and LIC Housing Finance among NBFCs. The FY25 and FY26 Bloomberg consensus EPS estimates have been cut across NBFCs, barring LIC Housing and Shriram Finance, it said while downgrading CreditAccess Grameen to 'Reduce' from 'Neutral' due to both growth and asset quality concerns.

"The past few quarterly results, especially Q2 numbers across the board, have validated most of our arguments around growth, cost of fund and credit costs," Nomura said.

Shriram Housing Finance continues to be its top pick in the sector, given its 15-17 per cent AUM growth, 16-17 per cent RoE franchise. The stock is still trading at benign valuations of 11 times FY26F EPS, it said.

"We also maintain Buy rating on Aadhar (20-21 per cent AUM growth, 17 per cent RoE over FY25/26F, trading at valuations of 2.4 times FY26F BV) and Fivestar (play on secured micro SMEs). We are negative on the remaining names, in the order of SBI Card, Mahindra Finance, CreditAccess Grameen  and Neutral on Cholamandalam," it said.
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Nomura said credit cost is likely to be higher in FY25 for NBFCs than in FY24, driven by higher delinquencies reported in unsecured personal/ credit cards/ micro finance segments; and ECL/EAD have come down for most players in recent years, from the highs during Covid, and are now at/below pre-Covid levels. 

There is limited cushion in terms of impact on P&L if asset quality deteriorates, it said.