Weak Q1FY25 print on the back of muted disbursements, y-o-y degrowth of 6.6% and increase in gross non-performing assets by 56 basis points to 1.46%.
Management sounded optimistic of its full year guidance despite Q1 weakness, however, it remains to be seen how growth picks up in the coming quarters.
Today there was an article on Livemint paper, about the promoters looking to exit.
PS: Admin, if this violates any regulations/rules of share, please delete it.
Trying to make sense of recent news, whether the owner exit will be a overhang wrt valuations and becomes a value trap in near term.
As per fundamentals, the stock is available at a best bargain since COVID times. So, it is still attractive from that POV.
As per the owner exit / change, I am trying to build the best and worst case scenarios.
Best case scenario is if is bought by another prominent player with more funds and more reach.
Worst case scenario is to be bought over by a player with poor track record of governance / asset quality management.
Neutral scenario is to go with status quo.
We can take the ownerâs expectation of 15-20% premium as a baseline return in a yearâs time.
Disc: Invested
Contrary to certain media reports, the company has refuted the speculations of a stake sale by the promoter. Currently, the promoter entity of CAGrameen is CreditAccess India, which was an outcome of the vertical demerger at the parent company level.
As per an Axis report. Can anyone confirm?
Sale or No Sale Does Not Matter
Company has proven itâs mettle .
Good Management, Good Operations.
Then Micro Finance has itâs own set of Problems.
Recent Heavy Rains in parts of Tamilnadu, Gujarat, Rajasthan, MP will hit them in Short Term.
I am expecting Bumpy ride
CreditAccess Grameen is looking attractive after the recent sell-off for a few reasons:
One of the reasons that the stock has dropped is the concerns over their promoter selling off their stake. However, the promoter is not involved in day-to-day operations even today, so I donât expect any major changes to management team or company culture.
I didnât find any obvious red flags, so seems like a great long-term opportunity. Please let me know if I missed any major points.
Sources & further info:
GreenEdge:
Tijori (GNPA):
Disc: recently bought a small position; Will monitor this for the next few quarters and decide whether to increase my holding.
Cheers,
Sharad
OpenSourceInvestor
Valuation wise, stock has corrected to lowest historical levels - 2P/B at around 900levels.
Hopefully thatâs the bottom, but nonetheless a good price to invest for the long term (2+years)
The current MFI stress should get resolved in 1-2 quarters and the company will resume on its growth path.
Disc: Invested at avg cost: 909
Let see how the next quarter results plays out especially on npa front. This quarter gnpa is less than Arman financial gnpa. Stock price plummeted a lot but still it has higher P/B in comparison to Arman due to lower gnpa.
Prof. Sanjay Bakshi recently mentioned the micro-lending industry in an interview:
"Letâs take the example of what is happening in the micro-lending industry right now. There are a lot of regulatory actions which have resulted in a market-wide selloff in the micro-lending business. But if you look at the history of the micro-lending industry, it has grown and grown over the years. The strong players keep getting better and better and more profitable over time. The weak players or the aggressive players will get dropped out of the game.
But thatâs not how the markets are treating the stocks of all the companies in that particular industry. Everything gets sold off the moment you start looking at it from a parimutuel point of view and you start thinking, âWell, you know, there is a downturn, but this downturn will actually remove some of the bad practices that are being followed in the micro-lending business.â
Whatever RBI is doing is actually a good thing by stopping all the aggressive lending practices that are being done. Therefore, the more conservative players, the more well-financed players, the more well-run players are going to be better off in the long run. But the stocks are still down. In fact, they have fallen almost as much as the stocks of other ones. So that gives you an opportunity. So that is the lesson that I want to leave the investor: think about the market as a parimutuel system."
Source: https://youtu.be/iWiLu_byjRA?si=gSKZtS0spYiEA2wA&t=2451
Based on my research, CreditAccess Grameen is the strongest player in Indian microfinance (lowest interest rates, efficiently run, healthy capital adequacy and funding). It seems to be following Charlie Mungerâs âWin-Win-Winâ model.
Are there any other micro-lenders in India that are better quality than CreditAccess Grameen considering the long-term runway (5~10 years+)?
Cheers,
Sharad
OpenSourceInvestor
Target price cut to rupees 564 for CAG is how much justified and whatâs the basis of that?
Target cut announcement and fund raising on the same day. what a co-incident! I have brought around 867 levels and planned to buy more on this levels, but Target by Goldman sacs to 564 is somehow fearing me.
One thing, I always remember in tough time is that âuncertain time gives chances to buy things at throwaway prices. Certainty in business always brings higher cost associated with it.â
Will look forward to deploy more cash near to Q3 results. Time correction, price correction and uncertainty are the price which one has to pay to create long term wealth. I may be completely wrong or right, future might tell me otherwise.
When the big players want to buy these brokerages give sell call downgrade call and vice versa. I have seen this in KPIT Technology. I also bought my first tranche of investment into a mfi bucket yesterday starting with CAG. I intend to buy CAG, Arman Finance and Muthoot Microfinance slowly.
Planning on bottom phishing at these low valuations ? I would suggest one to listen to Mr Digant Hariaâs interview on the MFI cycle.
Will we see further reduction of book value in Q4 results due to increased write offs in Q3 and Q4? No one knows.
