The microfinance industry in India has grown at a healthy pace of 17% CAGR over FY20-24, with a sharp growth recovery over FY23-24, as the industry reported a robust 23% CAGR over FY22-24.
Most microfinanciers bounced reported a robust performance over FY23-24 led by buoyant demand-led growth which was largely steered by strong customer addition and multi-year low asset quality metrics.
Axis Securities expects the risk of stress spilling over to FY26E seems lower. Thus, growth in the microfinance segment will remain muted over the next couple of quarters and accelerate as lenders exit FY25 with additional support by healthy demand in a seasonally strong Q4.
The brokerage firm continues to prefer CreditAccess Grameen amongst microfinance companies backed by its ability to deliver robust return ratios, adequate capitalization and a strong management team.
Axis Securities has three stocks to buy in the microfinance sector. Its top picks in the sector include CreditAccess Grameen, Ujjivan Small Finance Bank and Bandhan Bank.
Backed by an improving mix of non-MFI products and growth gradually picking up pace post-near term headwinds, broadly steady net interest margins (NIMs) and a controlled cost structure, Axis Securities expects CreditAccess Grameen to deliver a GLP / NII / Earnings growth of 23% / 23% / 21% CAGR over FY24-27E.
The broking house maintains its ‘Buy’ recommendation on CreditAccess Grameen shares, given that the risk-reward is favourable. It values CreditAccess Grameen at 2.4x FY26E Book Value versus its current valuation of 1.9x FY26E BV, to arrive at a revised target price of ₹1,555 per share.
“Barring the near-term pain, we believe CreditAccess Grameen’s premium valuations are justified owing to its ability to deliver robust return ratios, adequate capitalization and a strong management team,” Axis Securities said.
Ujjivan Small Finance Bank shares currently trade at 1.1x FY26E ABV and Axis Securities values the stock at 1.3x FY26E ABV to arrive at a target price of ₹52 per share. The brokerage maintains its ‘Buy’ rating on Ujjivan Small Finance Bank shares owing to reasonable valuations for a RoA and RoE delivery of ~2.8% and 20-22% over the medium term.
“Given the stress in the microfinance (group) segment, the bank is pursuing growth in a risk calibrated manner. With asset quality concerns continuing over the next couple of quarters, we expect some recovery as the bank exits FY25. Even as growth in group loans is set to moderate, individual loans and housing loans will continue to drive growth for the bank,” Axis Securities said.
Though Bandhan Bank share price trades at reasonable valuations, for a potential RoA / RoE delivery of 2.1-2.2% / 17- 20% over FY25-27E, we continue to maintain a ‘Hold’ recommendation on the stock given ambiguity relating to the strategy implementation as the bank awaits clarity on the appointment of the new MD CEO along with the outcome of the CGFMU audit, said the brokerage firm.
It values Bandhan Bank stock at 1.2x FY26E ABV to arrive at a target price of ₹205 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
