CreditAccess Grameen gains from normalised credit costs and expanding retail finance

Investment View and Valuation

Motilal Oswal Financial Services reiterates its Buy rating on CreditAccess Grameen and raises its target price to Rs 1,880 from the current market price of Rs 1,518. The target implies a valuation of 2.5 times estimated March 2028 price-to-book value.

The broker believes the strong 1QFY27 performance reinforces its confidence that credit costs have normalised. CreditAccess Grameen’s premium valuation versus microfinance peers can sustain because of its execution, deep rural presence, customer franchise, portfolio diversification and prudent risk management.

1QFY27 Financial Performance

CreditAccess Grameen reported profit after tax of about Rs 490 crore in 1QFY27, up about 45 per cent quarter on quarter and 11 per cent ahead of Motilal Oswal’s estimate. Net interest income grew 29 per cent year on year to about Rs 1,160 crore, in line with estimates, while pre-provision operating profit increased about 34 per cent year on year to Rs 870 crore, around 6 per cent above estimates.

Operating expenses rose about 10 per cent year on year to Rs 360 crore, in line with estimates. The cost-to-income ratio improved by about 110 basis points quarter on quarter to 29.3 per cent, compared with 30.4 per cent in 4QFY26 and 33.5 per cent a year earlier. Annualised credit costs declined to about 2.8 per cent from 4.8 per cent in 4QFY26, although the company created additional provisions of about Rs 41 crore in light of the West Asia crisis.

Growth and Operating Momentum

Disbursements increased about 12 per cent year on year to approximately Rs 6,110 crore. Assets under management grew about 16 per cent year on year and 2.5 per cent quarter on quarter to around Rs 30,300 crore. The borrower base was broadly flat sequentially at about 4.5 million, although management said it added approximately 250,000 borrowers during 1QFY27, with around 35 per cent being new-to-credit customers.

The company opened about 42 branches during the quarter, taking its network to 2,276 branches across 457 districts. It had approximately 14,500 loan officers. Retail Finance increased to 20.6 per cent of AUM from 18.1 per cent in 4QFY26, as seasoned microfinance customers graduated into higher-ticket retail products.

Asset Quality and Credit-Cost Outlook

Asset-quality indicators improved during the quarter. Gross NPA declined by about 1 percentage point sequentially to 2.2 per cent, while net NPA declined by approximately 35 basis points to about 0.8 per cent. Stage 3 provision coverage remained stable at about 65.4 per cent.

Collection efficiency including arrears improved to 97.7 per cent from 96.7 per cent, while collection efficiency excluding arrears increased to 97.4 per cent from 96.3 per cent. PAR 0+ declined to 2.2 per cent in June 2026 from 3.0 per cent in March 2026.

Management expects FY27 credit costs of about 3–4 per cent, potentially towards the lower end if geopolitical developments and the monsoon remain favourable. Write-offs are expected to moderate because they mainly relate to stress experienced in 2QFY26.

Management Strategy and Business Initiatives

Management reiterated its target of approximately Rs 50,000 crore in AUM by CY28 and intends to scale borrower additions to around 100,000 per month. It expects internal accruals to fund growth without requiring incremental capital.

Lending-rate reductions are expected to begin only gradually from 3QFY27 if credit costs sustainably stabilise near 3 per cent. Any renewed increase in credit costs could defer price cuts. The cost of borrowings is expected to remain near 9.3–9.4 per cent despite a higher mix of external commercial borrowings and non-convertible debentures.

The Grameen Mahi application onboarded approximately 400,000 customers during the quarter. It is expected to support loan eligibility checks, small-ticket disbursements, lead generation, retail cross-sell and cashless collections.

Estimates and Earnings Outlook

Motilal Oswal raises its FY27E and FY28E EPS estimates by about 13 per cent and 6 per cent, respectively. The revisions reflect expectations of higher net interest margins, lower credit costs and higher fee income.

Key Risks

• A reversal in asset-quality or collection trends could weaken earnings and delay lending-rate reductions.
• Adverse geopolitical events, including developments in West Asia, could increase credit costs.
• Unfavourable monsoon progression or El Nino-related stress could affect portfolio performance.
• Credit costs remaining above the expected 3–4 per cent range could pose a risk to the broker’s estimates and valuation thesis.