CreditAccess Grameen Gets 'Sell' Downgrade From Goldman Sachs — Here's Why

Goldman Sachs has downgraded CreditAccess Grameen Ltd. to a 'sell' rating, and slashed its 12-month price target by 60% to Rs 564, citing mounting concerns over the company’s asset quality and over-leveraging risks within the microfinance industry.

The brokerage highlighted significant risks to CreditAccess Grameen's earnings visibility, which it attributes to several factors, including a high exposure to over-leveraged borrowers and industry-wide stress. As of August 2024, about 46% of the company's assets under management and 47% of its borrowers were linked to lenders with three or more associations, increasing the risk of credit defaults.

Additionally, 24% of the borrowers have an indebtedness of over Rs 1.5 lakh, a factor expected to be negatively impacted by new guidelines introduced by the Microfinance Institutions Network in August.

The brokerage firm further expressed concerns about the recent downturn in asset quality, driven by both climatic disruptions and regulatory changes. Goldman Sachs predicts that these factors will continue to pressure the company’s financial performance, projecting credit costs to rise sharply to 6.6% in fiscal 2025 and 4.5% in fiscal 2026.

Goldman Sachs also forecasted a significant decline in earnings per share, reducing its estimates by 40% to 51% for fiscals 2025-27. It anticipates slower loan growth, lower margins due to interest income reversals, and higher operating costs. Consequently, Goldman Sachs has lowered its 12-month target price for CreditAccess Grameen to Rs 564, representing a 40% downside from its current share price of Rs 986.95. This cut follows broader concerns over competitive pressure, regulatory changes, and high market penetration in some states.

Despite the bearish outlook, Goldman Sachs noted possible upside risks if there is a stabilisation of fresh loan flows, sustained loan growth momentum, or further product diversification efforts. However, for now, with its revised estimates, Goldman Sachs remains cautious about the company's prospects.