Goldman Sachs initiates coverage on CreditAccess Grameen with buy

Goldman Sachs, a leading global investment bank, has initiated coverage on CreditAccess Grameen, a non-bank finance company focused on micro-finance business primarily in rural India. According to Goldman Sachs, CreditAccess Grameen is well positioned to capitalise on the expanded micro finance lending Total Addressable Market (TAM) and its efforts to diversify the customer base and loan book, aiming for more predictable and profitable lending growth in the coming years.

The company has demonstrated a commendable track record across market cycles. CreditAccess Grameen forecasts a healthy 21 per cent Compound Annual Growth Rate (CAGR) in Profit After Tax (PAT) over FY24-FY26, outpacing Goldman Sachs’ coverage estimates of 15 per cent, analysts at global brokerage noted.

The growth is likely to come on the back of a robust lending CAGR of 24 per cent, exceeding the system lending CAGR of 13 per cent. Additionally, CreditAccess Grameen is expected to maintain superior profitability with average Return on Assets (ROAs) of 5.6 per cent, attributed to a diversified loan book, market share gains, and industry-leading credit costs and operating efficiency.

The micro-finance institution (MFI) sector, post-COVID, has witnessed significant growth and a rebound in profitability, with an estimated expansion of MFI-TAM by approximately 50 per cent to $136 billion. This growth trajectory aligns with Goldman Sachs' positive outlook on commercial retail, including MFIs, driven by better growth drivers, improved profitability, and asset quality outlook compared to consumer retail.

Currently trading at 2.7 times Price-to-Book (P/B) and 12 times Price-to-Earnings (P/E) FY25E, CreditAccess Grameen's stock is considered at a discount of around 27 per cent to NBFCs within Goldman Sachs' coverage on P/E. Utilizing a relative P/E framework, Goldman Sachs values CreditAccess Grameen at 15 times FY25E EPS, implying a 3.4 times P/B ratio. This valuation reflects superior operating metrics, with a PAT CAGR at 21 per cent and an average Return on Equity (ROE) of 24 per cent over FY24-26E, surpassing the covered NBFC average.

Goldman Sachs initiates coverage on CreditAccess Grameen with a buy rating for target price (TP) of Rs 1,788 per share, implying an upside potential of 25 per cent.