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ICICI Securities
CreditAccess Grameen (Buy)
CMP: ₹380.4
Target: ₹480
CreditAccess Grameen (CAGL) stock currently trades at 2.4x/2.1x FY19e/FY20e P/BV, which is at significant discount (about 30 per cent one-year forward) to its closest peer Bharat Financial. During recent liquidity crisis period, stock has touched a low of about ₹250, but made strong come back after the company’s clarification on its effective asset-liability management and comfort of sustaining industry-leading assets under management growth. Currently, it carries six months positive cash on balance sheet.
Considering the potential business growth backed branch expansion plan, consistent decline in PAR portfolio post demon, focus on cost optimisation and better financial leverage, we expect the return ratios to improve going forward. We initiate coverage with ‘buy’ rating and target price of ₹480/share, valuing it at 2.5x FY20e P/ABV.
Historically CAGL has operated at 5x leverage and the same has enabled it to touch RoE of 20 per cent , however recent capital infusion had dragged down RoE to 13 per cent as at September 2018. We expect about 170 bps improvement in RoE to 14.7 per cent by FY20e. We value CAGL lower than its closet peer Bharat Financial to factor in a) higher exposure in Karnataka and Maharashtra; and b) lower RoE currently.
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