Creditaccess Grameen Limited — Q2 FY25 earnings call

Call held 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

  • 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

  • Over-leveraged borrowers

  • Slower-than-expected recovery

Key financials

  1. NIM 13.5% +3.8%QoQ
  2. GNPA 2.4%
  3. AUM ₹25,133 Cr +11.8%YoY
  4. PAT ₹186 Cr -68%QoQ
  5. Cost-to-Income Ratio 30.7%
  6. Capital Adequacy Ratio 26.1%

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
₹25,133 Cr Total
  • Group Lending (GL) ₹24,188 Cr 96.2%
  • Retail Finance (RF) ₹945 Cr 3.8%

Guidance & targets

Volume

  • Loan Portfolio Growth Volume · FY25 · Medium confidence 8-12%
    We anticipate loan portfolio growth of 8-12%, NIM of 12.8-13.0%, credit cost of 4.5-5.0%, ROA of 3.0-3.5%, and ROE of 12.0-14.0%.

    — Udaya Kumar Hebbar, Managing Director

  • AUM Target Volume · by FY28 · Medium confidence ₹50,000 crore
    We reiterate our medium-term growth outlook aiming to reach INR 50,000 Crore mark by FY28

    — Udaya Kumar Hebbar, Managing Director

Margin

  • NIM Margin · FY25 · Medium confidence 12.8-13.0%
    We anticipate... NIM of 12.8-13.0%

    — Udaya Kumar Hebbar, Managing Director

Profitability

  • Credit Cost Profitability · FY25 · Medium confidence 4.5-5.0%
    credit cost of 4.5-5.0%

    — Udaya Kumar Hebbar, Managing Director

Other

  • Retail Finance Share Other · by FY28 · Medium confidence 15%
    Now retail finance will grow as per our earlier model of what we said that by FY28, we would reach up to 15%.

    — Udaya Kumar Hebbar, Managing Director

Risks & concerns

  • Over-leveraged borrowers

    high

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

    Both acknowledged

  • Slower-than-expected recovery

    high

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

    Management acknowledged

  • Weather-related disruptions

    medium

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

    Management acknowledged

Areas of evasion (1)

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

Q&A highlights

2 direct
Sharp PAR increase in top states Direct
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

Recovery from delinquent customers Direct
The access to delinquent customers is still good, but unfortunately, the recovery is a little less compared to earlier... It is not on expected lines. We expected to recover more.

Reveals that while field access remains, actual cash recovery is proving more difficult than in previous cycles.

Asked by Hardik Shah, Goldman Sachs

Over-leverage and customer exclusivity Partial
We will definitely learn some of these lessons and build a more robust process to retain our employees, our customers.

Highlights the structural risk of multiple lending (4+ lenders) which is a primary driver of the current stress.

Asked by Nidhesh Jain, Investec

2 min read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

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