CreditAccess Grameen - Eminent Leader With Huge Untapped Opportunity: ICICI Direct Initiates Coverage

ICICI Direct Report

CreditAccess Grameen Ltd. is a Bengaluru based micro finance institution promoted by Credit Access India BV, with ~73% stake as of December 2022. It caters to low income households lacking access to formal source of financing.

Key triggers for future price performance:

• We expect industry assets under management to grow at a healthy pace led by - substantial untapped opportunity, favorable regulatory changes, new borrowers accretion with geographical expansion and increase in ticket size.

• Entry in new geography is to aid customer acquisition and improve granularity, while product flexibility to enable better customer retention at 80-90%.

• Increased threshold of household income is seen aiding both retention of existing customers and improved pace of new client acquisition.

• CreditAccess’ entry in asset backed loan segment to aid business growth. Share of non-micro book to increase to ~10% in next four to five years. Expect overall AUM to grow at 20-25% compound annual growth rate in FY23-25E.

• Relatively lower yields (at ~20% versus ~22-25% for peers) and removal of interest cap to improve net interest margins ahead (management guidance at ~12%).

• Steady opex/asset at ~5% and decline in credit cost to propel earnings trajectory at 52% CAGR in FY22-25E, thereby leading to improvement in return on asset ahead of 4% and return on equity at ~20%, thus aiding premium valuation.

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