CRISIL revises outlook on CreditAccess' rating to 'positive'

CreditAccess Grameen said that CRISIL Ratings has revised the rating outlook on the bank facilities and debt instruments of the company to 'positive' from 'stable' while reaffirming the rating on the same at 'CRISIL A+'.

CRISIL said that the revision in outlook is primarily driven by demonstrated resilience in CAGL's profitability supported by strong pre-provisioning operating profits (PPOP) which allowed the company to manage COVID-19 related challenges over the last two years.

Additionally, CRISIL Ratings expects a notable improvement in overall profitability of the company backed by further improvement in net interest margins as the company migrates to risk-based pricing.

The company has maintained its operating profitability at above average levels. For fiscal 2021 and 2022, the company's pre-provisioning profitability was 5.1% and 6.0%, respectively accredited to low operating expense ratio of 3.9% and 3.8% for the respective years.

Resultantly, despite the credit costs elevating to 6% for fiscal 2021, the company maintained its positive bottom line with a RoMA of 0.9% for the fiscal. As the macro factors restored in the second half of fiscal 2022, improved collections and pick up in credit growth resulted in an improvement of RoMA to 2.0% for fiscal 2022 while the credit cost for the year declined to 3.9%.

It is noted that the company has written off a sizable amount of Rs 1,157 crore (approximately 7.4% of the AUM on 30 June 2022) of their portfolio between March 2020 and June 2022.

For Q1 2023, profitability continued to revive reflected in a RoMA of 3.3% (annualized). The company's ability to restore itself to pre-Covid RoMA levels of 3-4% will be key monitorable.

As the credit costs continue to reduce and the company now has the liberty to implement risk-based pricing under the new framework for microfinance entities, a further improvement in pre-provisioning profitability is anticipated which is expected to yield a RoMA of above 3% over the medium term.

The rating continues to reflect CAGL's leadership position in the microfinance sector. The company has scaled its AUM to Rs 16,599 crore as of 31 March 2022 - marking an annual growth of 22%.

The rating also factors in CAGL's healthy capital position reflected in a comfortable capital adequacy ratio of 24.7% and a low gearing of 2.9 times as on June 30, 2022. Both these metrics have remained comfortable over the years.

CreditAccess Grameen (CAGL) is a microfinance institution focused on providing micro-loans to women customers predominantly in rural areas across India.

The microfinance lender's consolidated net profit surged to Rs 139.56 crore in Q1 FY23 as against Rs 20.29 crore recorded in Q1 FY22. Total income jumped 23.2% to Rs 760.52 crore in Q1 FY23 from Rs 617.37 crore reported in the corresponding quarter previous year.

Shares of CreditAccess Grameen shed 0.70% to settle at Rs 993.55 on Friday.

Powered by Capital Market - Live News