Creditaccess Grameen Limited — Q1 FY25 earnings call

Call held 19 Jul 2024

Management summary

CreditAccess Grameen delivered a resilient Q1 FY25 performance, maintaining industry-leading return ratios (RoA 5.4%) despite seasonal and election-related headwinds. While asset quality showed some transitory stress in non-core markets due to heatwaves and operational limitations during elections, management remains confident in its full-year guidance. The company is proactively tightening credit filters and aligning provisioning to the district level to navigate rising customer leverage trends.

Highlights

  • AUM grew 20.6% YoY to ₹26,304 crore, despite a sequential decline due to seasonal factors and elections.

  • PAT stood at ₹398 crore, delivering a robust RoA of 5.4% and RoE of 23.5%.

  • Net Interest Income (NII) increased 24.8% YoY to ₹953 crore, with NIMs remaining strong at 13.0%.

  • Asset quality saw a transitory dip with GNPA at 1.46% (60+ DPD) and PAR 90+ at 1.13%.

  • Disbursements for the quarter were ₹4,476 crore, with 1.90 lakh new customers added.

  • Cost of borrowing remained stable at 9.8% despite a tightening liquidity environment.

  • Management reiterated FY25 AUM growth guidance of 23-24% and credit cost guidance of 2.2-2.4%.

Concerns

  • Rising Customer Leverage

Key financials

  1. AUM ₹26,304 Cr +20.6%YoY
  2. NII ₹953 Cr +24.8%YoY
  3. PAT ₹398 Cr +14.4%YoY
  4. NIM 13%
  5. GNPA 1.5%
  6. Cost-to-Income Ratio 29.2%

What they filed

Q1 FY27: revenue up 21.9%, net profit up 721.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,453 1,380 1,407 1,463 1,508 +4%1,490 +8%1,597 +14%1,783 +22%
Net profit186 -100 47 60 126 −32%252 +352%340 +623%493 +722%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹26,304 Cr Total
  • Group Loan (GL) Business ₹25,542 Cr 97.1%
  • Retail Finance (RF) Business ₹762 Cr 2.9%

Guidance & targets

Volume

  • AUM Growth Volume · FY25 · High confidence 23-24%
    Therefore, we reiterate our annual growth guidance for FY25 and we do not see any downside risk to our growth guidance.

    — Udaya Kumar Hebbar, Managing Director

  • Customer Growth Volume · FY25 · Medium confidence 13%-14%
    The target for new customer acquisition, I think we already told, it is about 13%-14% which will be our customer growth anticipated for FY 25.

    — Udaya Kumar Hebbar, Managing Director

Margin

  • Cost of Borrowing Margin · FY25 · Medium confidence 9.8% to 9.9%
    We expect our cost of borrowing will be within the range of 9.8% to 9.9% for FY25.

    — Udaya Kumar Hebbar, Managing Director

Profitability

  • Credit Cost Profitability · FY25 · High confidence 2.2% to 2.4%
    We however, expect the delinquency trend to stabilise in the coming quarter and credit cost within the guided range of 2.2% to 2.4% for the year.

    — Udaya Kumar Hebbar, Managing Director

Market Share

  • Retail Finance Book Mix Market Share · by 2028 · Medium confidence 15%
    So, we already said earlier by 2028, it we will reach up to 15% of our book.

    — Udaya Kumar Hebbar, Managing Director

Risks & concerns

  • Rising Customer Leverage

    high

    Customer leverage increased by 16% and repayment load by 12% over the last three quarters, leading to tighter credit filters.

    Both acknowledged

  • Geographic Stress in Non-Core Markets

    medium

    States like Rajasthan, Kerala, and Jharkhand are seeing higher PAR0 (around 4%) compared to core markets like Karnataka.

    Management acknowledged

  • Regulatory Compliance (MFIN Rules)

    medium

    New industry caps on lenders (max 4) and exposure (₹2 Lakh) impact approximately 8% of the current borrower base.

    Both acknowledged

Areas of evasion (1)

  • Slightly vague on the exact impact of flood conditions in the current quarter, stating they 'don't see' impact yet but will review.

Q&A highlights

3 direct
Transitory vs Structural Delinquency Direct
The months of June and July are still stable. Our ability to collect back is better actually... in April and May, the delinquency was there, but our ability to recover was bad.

Investors were concerned if the rise in PAR0 was a structural shift in borrower behavior; management clarified it was an operational recovery issue during elections.

Asked by Renish Bhuva, ICICI Securities

Impact of New MFIN Guidelines Direct
Our current analysis says there could be an impact of roughly 8% [of borrowers in breach]. But I think with new customer acquisition, we should be able to manage that.

Quantifies the potential growth headwind from stricter industry self-regulation regarding lender limits and exposure caps.

Asked by Ashlesh Sonje, Kotak Securities

Rising Customer Leverage Direct
In the last three quarters what we observed is the leverage of the customer has increased by about 16%... similarly, the FOIR or repayment load... increased by about 12%.

Management admitted to seeing rising leverage on the ground, justifying their decision to tighten credit filters and increase credit cost guidance.

Asked by Hardik Shah, Goldman Sachs

2 min read 5 chapters

Detailed narrative

Navigating Transitory Asset Quality Stress

Q1 FY25 saw a temporary spike in delinquencies, with GNPA reaching 1.46% and PAR 90+ at 1.13%. Management attributed this to a 'perfect storm' of low rainfall last year, a severe heatwave, and operational constraints during the general elections which hampered field collections. However, collection efficiency (excluding arrears) remained strong at 97.8%, and management noted that recovery trends in June and July have already begun to stabilize, supporting their full-year credit cost guidance of 2.2-2.4%.

Strategic Pivot to District-Based Pricing

In a move to enhance risk-adjusted returns, CreditAccess plans to implement district-based loan pricing in Q2 FY25. This granular approach leverages their business rule engine to align pricing with localized risk profiles rather than state-level averages. This strategy aims to optimize revenue while maintaining the company's position as the lowest-cost provider in the microfinance industry with a portfolio yield of 21%.

Retail Finance as a Long-Term Growth Engine

The Retail Finance (RF) book reached ₹762 crore, with individual business loans making up 70-75% of the mix. Management reiterated their target for RF to constitute 15% of the total AUM by 2028. The strategy focuses on 'cherry-picking' seasoned microfinance customers with strong credit histories to move them into secured products like LAP and Affordable Housing Loans, which are expected to eventually comprise 45-55% of the retail book.

Proactive Response to Rising Leverage

Management candidly discussed rising customer leverage, noting a 16% increase in overall leverage and a 12% increase in repayment loads among sampled customers. In response, they have tightened credit filters, particularly in non-core geographies. They also addressed the new MFIN guidelines, estimating that 8% of their borrowers currently exceed the new lender or exposure limits, a challenge they plan to offset through aggressive new customer acquisition (targeting 13-14% growth).

Resilient Financial Profile and Operating Leverage

Despite the challenging quarter, the company maintained a high NIM of 13.0% and a healthy cost-to-income ratio of 29.2%. PPOP grew 30.4% YoY to ₹709 crore, demonstrating strong operating leverage. With a stable cost of borrowing at 9.8% and a robust capital position, the company remains well-positioned to achieve its 23-24% AUM growth target for FY25, with 60-65% of growth typically occurring in the second half of the fiscal year.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls