FY25, A Year Of Consolidation For Microfinance Industry Says Axis Securities

Axis Securities Report

In the past decade, the microfinance industry has faced two black-swan events – Demonetization and Covid-19, causing notable turbulence.

However, the MFI sector demonstrated remarkable resilience during both these crises through effective strategic responses. As compared to demonetization where the recovery for microfinanciers was comparatively faster, Covid-19 had a more disruptive and long-lasting impact on the businesses and livelihood of borrowers, and the growth and asset quality of microfinanciers.

However, most microfinanciers bounced back strongly and reported a robust performance over FY23-24. This was led by buoyant demand-led growth which was largely steered by strong customer addition and multi-year low asset quality metrics.

Despite Covid headwinds, the microfinance industry has grown at a healthy pace of 17% CAGR over FY20-24, with a sharp growth recovery over FY23-24, as the industry reported a robust 23% CAGR over FY22-24.

Outlook:

Backed by an improving mix of non-MFI products and growth gradually picking up pace post-nearterm headwinds, broadly steady NIMs and a controlled cost structure, we expect CreditAccess Grameen to deliver a GLP/net interest income/earnings growth of 23/23/21% CAGR over FY24-27E.

We value CreditAccess Grameen at 2.4 times FY26E book value versus its current valuation of 1.9 times FY26E book value, to arrive at a revised target price of Rs 1,555/share, implying an upside of 31% from the current market price.

We maintain our Buy recommendation on the stock, given that the risk-reward is favourable. Barring the near-term pain, we believe CreditAccess Grameen’s premium valuations are justified owing to its ability to deliver robust return ratios, adequate capitalisation and a strong management team.

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