CreditAccess Grameen shares crack 18%; Nomura slashes target price

CreditAccess Grameen Ltd (CREDAG) shares plunged 18 per cent in Monday's trade, as microfinance institution (MFI) reported its first-ever quarterly losses since the third quarter of FY21 on account of elevated credit costs. The MFI's asset quality deteriorated for the fifth consecutive quarter, with its guidance getting revised across metrics. This led a 17.92 per cent drop in the MFI's shares on Monday. The stock hit a low of Rs Rs 750.05 apiece by 10 am.

Nomura India said CREDAG's financial performance for the quarter reflected the challenging conditions in MFI sector, characterised by elevated credit costs, sequential decline in loan portfolio for third consecutive quarter and higher field level employee turnover. 

Given the pressure on both growth and asset quality, it cut its FY26 and FY27 EPS estimates for CreditAccess Grameen by 16 per cent and 13 per cent, respectively. The brokerage suggested a target price of Rs 800 on the stock against its earlier target price of Rs 850.

"Though, CREDAG emphasised on reversing delinquency trends, guiding 18-20 per cent GLP growth and 17-19 per cent RoE in FY26F, we find it difficult to achieve due to further accelerated write-offs and stress in Karnataka and Tamil Nadu which form 50 per cent of its loan book. We build in lower RoE of 14-17 per cent over FY26-27.  

For the quarter, CreditAccess Grameen's asset under management fell 1 per cent sequentially, driven by decline in borrowers (down 2.6 per cent QoQ) amid the implementation of tighter underwriting norms. 

Nomura India has downgraded CREDAG to a non-consensus 'Reduce', citing pressure on asset quality and growth, and this continues to play out. It does like CREDAG, especially its aggressive stress recognition and provision policy, though, normalisation of the MFI sector is sometime away, it said.

The CreditAccess Grameen's management has moderated its FY25 GLP growth guidance to 7-8 per cent from 8-12 per cent, tapered its return on equity (RoE) targets to 9.5-10 per cent from 12-14 per cent and increased credit cost expectations to 6.7-6.9 per cent from 4.5-5 per cent for FY25. 

"We keep Reduce and cut target to Rs 800, implying 1.4 times FY27 BVPS. The stock is still trading at 1.6 times 1-year forward PB, 37 per cent discount to its long-term average.  Historically, the stock has traded at trough valuations of 1.4-1.6 times 1-year forward BVPS in earlier down-cycles," Nomura India said.