Target: ₹1,300

CMP: ₹1,012.20

CREDAG’s Q1 FY23 performance was on expected lines as the business growth was impacted by process transition from implementation of RBI’s recent MFI guidelines even as collections remained firm. Consolidated disbursements were much lower compared to Q4 FY22 (5 per cent ahead of our estimate though) due to system/process changes and large-scale manpower training. While borrower addition was significantly low during April and May, loan renewals were also limited during the quarter due to minimal disbursements in Q1 of FY21/22 owing to Covid. Customer addition has started to normalise from June, and the company has disbursed about ₹1,200 crore in July (₹200-crore AUM accretion in the month). The management reiterated its annual growth guidance of 24-25 per cent with branch addition continuing outside of the Top 3 states (Karnataka, Maharashtra and Tamil Nadu).

Collection efficiency (w/o arrears) in June stood at 97 per cent. Collection efficiency (w/o arrears) in June excluding non-paying NPA customers was at 99 per cent. MMFL. Write-offs were lower at ₹190 crore v/s ₹295 crore in Q4 FY22. This depicts firm collection trends through the quarter, and thus there was no increase in stress pool/non-paying clients. Full-year credit cost is estimated at 1.8-2 per cent, with H1 to bear a larger burden owing to write-off of Covid stress.

CREDAG’s growth and profitability should pick up from Q2 FY23. Much deeper benefits should accrue to the company from the new microfinance regulations given its deep rural distribution, high customer retention, competitive pricing and readiness to build a significant secured/non-MFI book. RoA/RoE in FY24 would be much better than FY23, due to lower credit cost and full benefit of risk-based pricing.

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