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    CreditAcc. Gram.

    CREDITACCMixed
    Financial Services·25 Oct 2024
    Management Summary

    CreditAccess Grameen reported a challenging second quarter characterized by rising delinquencies across the microfinance sector. While NII and NIMs remained resilient, asset quality stress necessitated higher provisioning and a significant downward revision of full-year guidance. Management views this credit cycle as transient, driven by over-leverage and weather-related disruptions, and expects stabilization to begin in Q3 FY25.

    Highlights

    6

    • AUM grew 11.8% YoY to ₹25,133 crore, though it witnessed a 4.4% decline on a QoQ basis.

    • Net Interest Income (NII) increased by 20.8% YoY to ₹933 crore with a stable NIM of 13.5%.

    • Asset quality showed stress with GNPA rising to 2.44% and NNPA at 0.76% (measured at 60+ DPD).

    • Credit cost for Q2 stood at ₹420 crore, leading to an annualized gross credit cost of 4.7% for H1 FY25.

    • PAT for Q2 was ₹186 crore, reflecting a ROA of 2.7% and ROE of 10.7%.

    • Management revised FY25 guidance downwards: AUM growth to 8-12% and ROA to 3.0-3.5%.

    Concerns

    2

    • Over-leveraged borrowers

    • Slower-than-expected recovery

    Key financials

    Single quarter

    06 metrics
    1. 01NIM13.5%+3.8%QoQ
    2. 02GNPA2.4%
    3. 03AUM₹25,133 Cr+11.8%YoY
    4. 04PAT₹186 Cr-68%QoQ
    5. 05Cost-to-Income Ratio30.7%

    Segment breakdown

    • Group Lending (GL)₹24,188 Cr96.2%
    • Retail Finance (RF)₹945 Cr3.8%
    Donut· Share of AUM

    Guidance & targets

    5
    CategoryTargetPriority
    Volume
    Loan Portfolio Growth
    8-12%
    		Medium
    Volume
    AUM Target
    ₹50,000 crore
    		Medium
    Margin
    NIM
    12.8-13.0%
    		Medium
    Profitability
    Credit Cost
    4.5-5.0%
    		Medium
    Other
    Retail Finance Share
    15%
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Over-leveraged borrowers

    A segment of borrowers with lower cash flow and multiple loans (4+ lenders) is driving the bulk of delinquencies. — Both acknowledged

    high

    Slower-than-expected recovery

    Management admitted that recovery from delinquent buckets is not meeting their earlier expectations. — Management acknowledged

    high

    Weather-related disruptions

    Low rainfall last year followed by heat waves and recent heavy rains in September impacted agri-laborer incomes. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specifics on the 'old' guidance values that were being revised.

    Q&A highlights

    3

    “September was a kind of peak... maybe the trend of reversal should start from Q3. So, it may be October may be stabilized, November may start turning around, and December may be bit improvement.”

    Investors are concerned about the velocity of delinquency increases in core markets like Bihar and Karnataka.

    asked by Dhaval, DSP Mutual Fund

    2 min read5 chapters

    Detailed Narrative

    01

    Asset Quality Stress and Transitory Cycle

    Management acknowledged a temporary increase in delinquencies across various geographies, citing localized disruptions and third-party interventions. PAR 90+ stood at 1.74%, while GNPA reached 2.44% (measured at 60+ DPD). The stress is primarily attributed to over-leveraged borrowers and weather-related income variations for agri-laborers. Management believes this credit cycle is transient📎 and expects stabilization to begin in Q3 FY25, with a turnaround in Q4 FY25.

    02

    Revised FY25 Guidance

    Due to the current industry landscape, CreditAccess revised its FY25 annual performance guidance. Loan portfolio growth is now expected at 8-12%, down from previous expectations. NIM guidance was set at 12.8-13.0%, and credit cost is projected to be higher at 4.5-5.0%. Consequently, ROA and ROE targets were lowered to 3.0-3.5% and 12.0-14.0%, respectively.

    03

    MFIN Guardrails and Underwriting

    The microfinance industry, through MFIN, implemented new guardrails in July 2024 to strengthen underwriting norms. CreditAccess noted that these measures are essential for long-term industry health but have led to an accelerated realization of delinquencies in the short term. The company is focusing on 'high touch' engagement and deploying senior field staff to manage PAR control.

    04

    Lender Overlap and Vintage Analysis

    A key highlight of the call was the granular analysis of customer overlap. Customers with 4 or more lenders accounted for 12.6% of the group lending portfolio but had a significantly higher PAR 15+ of 12.2%. In contrast, unique customers showed the lowest delinquency. Management highlighted that stress is concentrated in low-vintage customers (0-4 years) who were onboarded during a period of high loan velocity.

    05

    Medium-Term Growth Outlook

    Despite near-term challenges, management reiterated its medium-term goal of reaching ₹50,000 crore AUM by FY28. This growth is expected to be driven by a combination of Microfinance and Retail Finance businesses. Retail finance is targeted to reach a 15% share of the total portfolio by FY28, up from its current small base of ₹945 crore.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.