CreditAccess Grameen Share Price Falls to 52-Week Low: Here’s Why

Why CreditAccess Grameen’s Share Price Hit a 52-Week Low: Unpacking the Q2FY25 Results

CreditAccess Grameen’s share price plunged over 5% after releasing its Q2FY25 results, hitting a 52-week low. This slump can be traced to multiple factors affecting the company’s quarterly performance and future growth potential. Let’s delve into the details to understand what triggered the market reaction and whether this marks a turning point for the microfinance player.

Earnings Dragged Down by Surging Provisions

CreditAccess Grameen’s provisions skyrocketed in Q2FY25, more than doubling compared to the previous quarter. The steep rise in Gross NPA to 2.44% and Net NPA to 0.76% is a red flag for the company’s asset quality. This uptick in non-performing assets (NPAs) points to rising delinquencies, creating a substantial dent in profitability as the company allocates more funds to manage credit risk.

Slowing Disbursements Amid Operational Challenges

Seasonal factors such as heavy rainfall and industry-wide control measures led to an 11% YoY and 2% QoQ drop in disbursements, impacting loan book expansion. Consequently, assets under management (AUM) growth de-grew by 4% on a sequential basis. This reduced disbursement rate has hindered CreditAccess Grameen’s growth, signaling a slower path to achieving its targets.

Revised Credit Cost Guidance Adds to Profit Pressure

The company revised its FY25 credit cost guidance sharply upward, now expecting costs between 4.5-5%, compared to an earlier estimate of 2.2-2.4%. The increased provision is a necessary but costly response to asset quality concerns, particularly in new geographies. With credit costs eating into earnings, this cautious stance is essential for managing short-term challenges but comes at a price.

Trimming Growth Guidance to Address Market Headwinds

Reflecting ongoing industry headwinds, CreditAccess Grameen has revised its FY25 growth guidance, now targeting GLP (Gross Loan Portfolio) growth of 8-12%, down from 23-24%. This conservative approach indicates that recovery may only begin in Q4FY25. Consequently, the share price target was adjusted downward, aligning with a more realistic outlook.

Customer Over-Leverage Adds Complexity to Asset Quality

Another key challenge is customer over-leverage. Over 12.6% of CreditAccess Grameen’s customer base now has exposure to more than five lenders, up from 8% the previous year. This trend is most pronounced among newly sourced customers, impacting asset quality. With higher PAR (Portfolio at Risk) ratios, the stress among over-leveraged customers remains a critical issue for the company’s financial stability.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.