Grameen Maitri And MAHI Will Streamline Processes And Reduce Costs

Key Takeaways

• Improved delinquency trends and operational recovery are set to stabilize asset quality and positively impact revenue and earnings growth.
  
• Strategic diversification and digital investments enhance growth prospects and operational efficiency, supporting higher net margins.
  
• Increased delinquencies and tighter underwriting may limit growth and profitability, while reliance on over-leveraged customers elevates future default risk.

Catalysts

A non-banking financial company, provides micro finance services for women from poor and low income households in India.

• CreditAccess Grameen is anticipating an improvement in delinquency trends by Q4 FY '25 or Q1 FY '26 as new delinquency addition rates are slowing down, which is expected to stabilize asset quality and potentially enhance net margins by reducing credit costs.
  
• The company is experiencing a resurgence in disbursement rates, crossing 80% of the normal trend in December and expected to reach 90% in January, driven by improved collection efficiencies and new borrower additions. This operational recovery is likely to positively impact future revenue and earnings growth.
  
• CreditAccess Grameen's retail finance division has shown significant growth in disbursements, increasing by 51% Q-o-Q, now accounting for 5% of AUM. This diversification into retail finance could compound revenue streams and enhance growth prospects.
  
• The company maintains a strong liquidity position with cash and cash equivalents, along with significant sanctions in hand and in the pipeline, ensuring adequate funding for growth initiatives without impacting net margins adversely.
  
• Strategic investments in digital platforms like Grameen Maitri and MAHI for enhancing operational efficiency and customer engagement are poised to streamline processes, reduce costs, and support higher net margins in the long term.

CreditAccess Grameen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CreditAccess Grameen's revenue will grow by 32.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.3% today to 36.6% in 3 years time.
• Analysts expect earnings to reach ₹20.2 billion (and earnings per share of ₹130.86) by about March 2028, up from ₹8.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹13.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, down from 17.0x today. This future PE is lower than the current PE for the IN Consumer Finance industry at 17.7x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.47%, as per the Simply Wall St company report.

CreditAccess Grameen Future Earnings Per Share Growth

Risks

• The increase in delinquency trends since Q1 FY '25 due to various disruptions indicates potential issues with asset quality, which could affect net margins and earnings.
  
• The transient nature of the recent delinquencies suggests that microfinance borrowers may face financial instability, impacting long-term revenue and profitability.
  
• Tighter underwriting standards in response to increased delinquencies could slow growth in new disbursements, affecting overall revenue growth.
  
• Reliance on retaining customers who are over-leveraged poses a risk to customer retention rates and could affect future growth if these customers default.
  
• Accelerated write-offs, although mitigating immediate risk, imply elevated credit costs that affect net margins and overall profitability, impacting the ability to deliver expected returns in the short term.

Valuation

• The analysts have a consensus price target of ₹1044.125 for CreditAccess Grameen based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1300.0, and the most bearish reporting a price target of just ₹600.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹55.2 billion, earnings will come to ₹20.2 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 16.5%.
• Given the current share price of ₹943.8, the analyst price target of ₹1044.12 is 9.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.