Nomura has downgraded CreditAccess Grameen to “Reduce” from “Neutral” and slashed the target price to ₹950. With the current market price at ₹1,118.80, this indicates a potential downside of approximately 15%.
The downgrade comes as Nomura highlights multiple headwinds for the microfinance (MFI) sector, particularly with upcoming state elections in key markets such as Maharashtra, Bihar, and Jharkhand, which collectively account for 28% of the company’s assets under management (AUM). The brokerage notes a steep decline in disbursements and AUM growth, along with deteriorating asset quality.
Nomura pointed to a sharp rise in portfolio at risk (PAR) across different buckets, with PAR-0 reaching 4.9% in Q2 FY25 compared to 2.5% in Q1 FY25. This is expected to result in elevated credit costs, not only in Q2 FY25 but in subsequent quarters. Rising non-performing assets (NPAs) will also trigger interest income reversals, negatively impacting yields and net interest margins (NIM). Additionally, the influx of FinTech partnerships with NBFCs offering small unsecured loans at high rates has exacerbated asset quality issues.
Disclaimer: The information provided is for informational purposes only and should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions.
