CreditAccess Grameen Limited (CREDITACC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of CreditAccess Grameen hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir.

Thank you, Sruthi. Good evening, everyone. We welcome you to the earnings conference call of CreditAccess Grameen to discuss the Q1 FY '27 performance of the company. Today, we have the management of the company represented by Mr. Ganesh Narayanan, MD and CEO; Mr. Gururaj Rao, COO; Mr. Nilesh Dalvi, CFO; and Ms. Sahib Sharma, Head of Investor Relations. Thank you to the current management for giving us opportunity to host this call. I would now like to hand over the call to Mr. Ganesh Narayanan for his opening remarks, post which we can open the forum for question and answer. Over to you, sir.

Thank you, Shreepal. A very good evening, and welcome to the conference call to discuss our Q1 FY '27 business performance. I'm pleased to say that Q1 FY '27 has been one of our strongest Q1 in the history of the company, marked by robust portfolio growth, normalized asset quality and profitability levels that reflect the underlying strength of [indiscernible] of our franchise. let me begin with the operational highlights. Our AUM grew 16.4% year-on-year and 2.5% quarter-on-quarter to [ INR 30,319 crores ], despite 6.3% TPN write-off and typical seasonal softness at Q1 rates. Disbursements for the quarter stood at [ INR 6,107 ] crores, up 11.9% year-on-year. We added 2.5 lakh new borrowers during the quarter, of which 35% was due to credit, and we expect the run rate to improve further, adding close to an average of 1 lakh borrowers per month going forward. This should be the primary driver of our MFI growth trajectory through the remainder of the year. At the same time, digital collections including other modes have risen to 24.2% of total collections in Q1 FY '27, up from 16.3% in the last financial year. We continue to see the scale-up of our retail finance book, which now constitutes 20.6% of the AUM, up 250 basis points sequentially from 18.1% in Q4 FY '26. The growth reflects the deliberate graduation of high-quality vintage customers into the retail finance book. Our distinct retail customer on build on long vintage, credit [indiscernible] strong underwriting foundations is central to this direction, and we then be speaking to this in more detail shortly. . On the operational front, we opened 42 new branches during the quarter, taking our total network to 2,276 branches, a growth of 7.7% year-on-year, spread across 457 districts. Our employee base grew 3% year-on-year to 21,981. And importantly, employee attrition continued to moderate meaningfully standing at 20.6% as of Q1 FY '27 against 25.8% in Q1 FY '26. The quality of our portfolio remains as one of the best in the industry with the set of unique group lending borrowers with portfolio quality has historically been relatively better at 45.7% and the [ QM ] share of borrowers with [ over ] 3 lenders and 2.6% as of June '26 end, reflecting the continued success of our de-rating efforts and adherence to [indiscernible]. Our Kastuarapp, Grameen Maitri, continues to see strong traction. We onboarded 4 lakh customers on the app during Q1 FY '27 alone, taking our overall active base to 15.4 lakh customers and 34.5% of our total borrower base. Over time, as the customer adoption of Maitri increases, we expect Grameen Maitri to evolve into an anchor for instant loan easily effects, small ticket loan availment, lead generation for new customers and retail products and a unified cashless collection ecosystem. We see this as a structural shift in how our customers choose to engage with us. Our net interest margin was robust at 14.4% at the Q1 FY '27, driven by a combination of improving yields, lower interest reversals and stable cost of borrowings. Our cost-to-income ratio stood at [ 29.3% ] and import grew 33.6% year-on-year to INR 873 crores. Turning to the asset quality. Our power accretion trends remained well within the normalized range contributing to a continued reduction in delinquency across all buckets. Ex-bucket collection efficiency for June 2026 stood at [ 99.68 ]. The average PAR 15 accretion rate for Q1 FY '27 stood at 15 basis points per month, whereas the credit cost for the quarter stood at INR 212 crores or 0.72% on a nonannualized basis, comfortably within our guided range. Gross NPA stood at 2.18%, net NPA at 0.76% and PAR 90 at 1.46%, each showing sequential improvement. As a result, our Q1 FY '27 PAT grew 720% year-on-year to INR 493 crores, resulting in an ROE of 5.9% and ROE of 24.4%. On profitability, I want to spend a moment contextualizing our numbers appropriately. Our ability to demonstrate with recovery helped us report strong improvement in our return ratios in Q4 FY '26 and further in Q1 FY '27, thus helping us to improve our trailing 12-month [ ROA to ] 4% and ROE to 16%, both aligned with our guided cross-cycle profitability metrics. In view of this, as an increasing start when credit cost behavior over the coming months will be the key determinate, we shall continue to monitor this closely and accordingly take a call on forcing the pricing benefit of the customers in hedge to FY '27, in line with our Board-approved pricing policy. On the balance sheet side, we continue to maintain ample liquidity with cash and cash equivalents of INR 3,586 crores amounting to 10.4% of the total assets. This is particularly important given the ongoing estate crisis. I want to clarify that, to date, we see no discernible impact on our business from this development. Our liquidity buffer with undrawn funding lines of INR 2,993 crores and [ INR 9,414 ] crores our funding pipeline positions us well to navigate any external volatility should it arise. Separately on LME loan and its potential impact on overall cash flows. We've not witnessed any visible impact currently. We will closely watch the underlying trends over the next 2 to 3 months before drawing any conclusions on how the situation may unfold. During the quarter, we also completed a private [indiscernible] of INR 425 crores, which further identifies our liability base and reduces our reliance on any single funding source. Our overall funding profile remains healthy and borrowing at 24% of our liability mix and capital position remaining strong, their CRAR stood at 24.9%. I would also like to draw your attention to one metric that this captures our long-term performance. Over the past 6-plus years, involving 4 years of stress events, that is 2 years of COVID and 2 years of MFI credit cycle, the company's net worth increased from INR 2,734 crores in financial year '20 to INR 8,347 crores in Q1 FY '27, compounding a 20% CAGR, of which 86% increase came on to internal growth. Very few NBFCs in the countries have delivered this pace of balance sheet compounding. It is an outcome of our consistently strong profitability, prudent capital allocation and our ability to navigate changing business cycles while preserving financial strength. We've been witnessing structural shifts in our customer profile and trend is greater detail on Slide 26 of the investor presentation. Today, our customers exited a significantly more diverse credit and income profile than in the past, a meaningful proportion of our borrower households already have retail credit exposure, alongside the micro financial relationship, whether through business loans, gold loans or through other secure products. And this diversification thanks to increase with customer vintage. The customer is moving into the retail finance pond exhibits strong underlying characteristics. As for understanding our loan customers carry an average vintage of 7.7 years and an average credit score of 732, while customers availing Wates loans saw an average vintage of 6.2 years and an average credit score of [ 714 ]. These metrics reflect the depth of quality of relationships we've built over time and validate the opportunity we see in graduating our microfinance customers into higher ticket secured retail products. Unlocking this potential in the core pillar of our retail model and our life-taking finance strategy. This question lays the foundation for our transformation journey called Project Satta that embodies the strength, resilience and aspirations of communities we proudly serve. We remain fully committed to our medium-term [ guidance ] of 50,000 [indiscernible] by calendar year 2028. Confident reinforced by the strength of the start we have made this quarter across borrower additions, asset quality and margins. As we move through the rest of the year and into the year beyond, we do so with confidence in our ability to compound this franchise responsibly and deliver sustained value to all our stakeholders. We will now open the floor for questions. Thank you so much.

[Operator Instructions] The first question is from the line of Renish from ICICI.

Congrats on a good set of numbers. Just 2, 3 things. So first, on the guidance part, right? So do you foresee any risk to electric current strong momentum, maybe due to El Nino second order impact or et cetera? And hence, we are not changing guidance or we might revisit in Q2?

See, right now, we think everything looks positive, and we don't see a reason why we should be taking into account something that could develop at this point of time. However, we remain with the guidance today as it is so that we watch one more quarter before we make any further step on the guidance.

Okay. Okay. Okay. Got it. And secondly, again, on this progress towards building our non-MFI book, right? So when we are reporting a 24% ROE in Q1, essentially, which cover a core MFI business is doing extremely well because most of your non-MFI businesses, either will be incurring losses or maybe at very marginal profit at this point in time, so internally, what are the metrics you track to get a sense how long all these products will bring down your P&L? And is there any time line in management's mind, for example, let's say, mortgage you get in the business for more than 2 years? And what could be the time frame bearing the new business which should start generating credit ROEs or ROE?

See, most of the products are already profitable, including mortgage, if you don't consider our head of our allocation is still profitable. So all products, like we discussed earlier, none of them are diluting in ROEs. And as a product line, also they have become profitable except for 2 [indiscernible], which is a small look at this point of time, right? So other than that, anything is already in order. Mortgage, we will need something like INR 1,000 crores to reach full breakeven, including consolidation costs.

Okay. But I'm sure the ROA is really much lower, right, in this product?

So Nilesh here. So largely, I mean all our lending rates are being published on our website product wise. So you can see that the lending rates in all retail finance products are very much similar or I mean, in the individual business loans, it is maybe 50 bps higher than the MFI because there, we don't have the group mechanism. And even in the business loans backed by property, the average lending rate is around 20.5%. So it's around maybe 1% below MFI. But then the OpEx is much, much lower. The credit cost is much, much lower. So that's where today, if you keep aside the housing book, which is maybe only 1% of the total AUM, the balance, 99% AUM is all at 20% plus gauge. So from that perspective -- yes, that's why you see that despite the MFI share is dropping, the ROEs are not affected. If the MFI share is at 79%, if it has come down from, say, 90 -- 100% to 79%, it still can't maintain the ROEs if the retail finance is not contributing. So I mean it is very much apparent that retail finance is equally profitable. And that's where the overall -- while the AUM mix is evolving, still see the ROEs and the ROEs right there.

I think [ 91% ] of our book today is the graduated unsecured business on our book. So that is already profitable like the group loans. Like Nilesh said, while these are lower here, the credit costs are also much lower, will be much lower than secured business loans. Would kind of reset the any overhang.

Got it. So basically, you're saying that at the risk adjusted level, most of these products are either at par with IGL profitability or slightly better.

Yes.

And just a last clarification on this [ OPN ] mortgage loan, so what percentage of the customer pool is existing to company? And incrementally, what is the sourcing mix between new to company and existing to come?

[indiscernible] is 100% internal. And your mortgage is today [ 60-40, 55-45 ] internal. 55 is internal. 45 is external.

Okay. Okay. Okay. And independently also, this would be declining?

Yes. So in our assumptions, we assume 60-40, so it should be range on anywhere between 55 and 60 internal customers.

Got it. Got it. Got it. And the credit score, which you published on the mortgage piece, which is 700 plus, this is at the book level. .

Yes.

The next question is from the line of Abhijit from Motilal Oswal.

Congratulations on a strong quarter. So just firstly see clarification on the previous answers that you gave. You said that maybe want to wait for 1 more quarter or before maybe they're looking at the FY '27 performing values. But you can safely conclude that you're not seeing any on the ground today with regards to either [indiscernible]

Yes, there is absolutely I think [indiscernible]

Got it. And then, sir, again, a clarification on the previous question where you were just trying to explain that maybe the profitability metrics in retail finance, maybe just works out to similar to maybe what the GLG offers on a risk adjusted basis. So even through a credit -- full credit cycle, do you think the credit cost and the operating economics in retail finance will compare with the traditional retail business that we have?

Yes. So if I look at the retail credit cycle that went through, the retail products actually helped much stronger ground, right? So the PAR 30 in the book level crossed around [ 3% ]. That was a [indiscernible] even at the credit cycle.

Got it.

It held ground through the credit cycle. I'm saying even going forward because the profile of customers we just associated both into vintage and our own knowledge of this customer base. And we are carefully choosing customers to graduate. And that should hold better than microfinance portfolio. It's all points of time is what we think.

And then, sir, maybe the last question that I had is, I mean, now that maybe we are in an up cycle again in the micro finance, so all of us are just trying to understand maybe whether this up cycle can be structurally better than the previous one. You can clearly see that industry growth has started picking up again. So just trying to understand, are there any specific underwriting guardrails that we have put in place to ensure that maybe this up cycle is better than the past up cycles? So any structural changes that you've done in customer selection?

See, you know that we have a VR right? So because of technology that we have, we, on a continued basis, fine-tune our policy. I could have different parameters for different states, different districts different profile of customers, et cetera. And that's something that we fine tune on a continuous base. So it cannot be uniform across different geographies. And that goes through the revision probably on a quarterly basis, depending on how do you see a certain part of overlay. [indiscernible] improvement that we do all.

Just want to add here that we think are planning have been guarded [indiscernible] so that is continuing. So that is ensuring that customers are not over [indiscernible] and they are within the guardrails. [ And it is was selling for the DR in place now ]. We are able to control our credit policy at product level, at customer level and at geography level. So it can be to very, very fast and applied. So we do see this up cycle very, very structured and strong and it should continue that way.

Got it. That answered the question and maybe just 1 last question for Nilesh. I think this quarter, when we look at credit costs, somewhere around 2.8, 2.9-ish on an annualized basis. Should we now view this as a new normalized run rate? Or would we expect the credit cost, I mean, except for this El Nino and monsoons, credit cost to settle at these levels or somewhat higher level over the medium term as really growth accelerates portfolio starts seasonally the move that we're originating today?

I think Abhijit, see, largely, I think the way we are shaping up the AUM profile, so directionally, we believe that microfinance credit costs should hold better because now the industry has rationalized to a good extent. And today, the customer places in shape. The leverage levels have come down. And the guardrails, we ensure that this will be point of -- is maintained going forward. And in addition to that, as we are kind of graduating our customers to individual loans or mortgage loans, there we see that our ability to control the customer behavior is better. So like if you see over the last 12 to 15 months, the share of our unique customers has gone up. Today, it's around 45%. And in our retail finance, it is higher. So that is where, overall, we believe that the quality of the book will keep getting better as we are able to retain our high vintage customers. So like historically, we were losing our relatively higher vintage customers. But now if you've seen retail finance, the average customer vintage is almost 7 years. So that is something which will keep building up and it will help us to manage our overall credit cost going forward. So the current trend is still holding well, maybe around 15, 20 bps of the PAR 15 is what we have been seeing in the first 4 months. So obviously, there may be a few hiccups here and there basis, weather conditions, but largely, we believe that the [indiscernible] trend is holding up well on ground.

[Operator Instructions] The next question is from the line of Rajiv Mehta from Yes Securities.

Congratulations on very strong numbers. Wanted to understand what kind of pricing reduction will have to happen in the second half if the current collection trends continue because I think there is a big disconnect between the ROE delivered in the first quarter and for the whole year you're guiding it retail there. So then what kind of pricing reduction will have to happen? Broad calculation suggests that you might have to reduce pricing by 200, 250 basis points from October onwards because even that will have a partial impact on the whole year ROE, improving only in the second half. And maybe even that pricing cannot only happen in the MFI book and not in the retail book. Would this be the correct understanding?

So pricing depends on a few components that we track on a 12-monthly basis, right? So any priority input, all of the price quality of the company in our thought process currently by end of Q2, probably you look at 50 basis points price at an EBIT of owned asset quality assets in Q2.

Then, Ganesh, what will then drag the ROE to the full year average, right, if you are starting with such a high ROA number and if only 50 bps of pricing reduction has to happen only from October? And that too may not happen on the retail finance book. It will only happen on the MFI book. Then how should we look at your NIM guidance and the ROA guidance?

See, Rajiv, Nilesh here. So maybe I'll give you some perspective on how this will work. So largely today on our borrowing cost, there is a decent visibility we have. Obviously, in this year, we'll be also focusing more on increasing our PCB loans, NCB loans, which come a bit longer than us and they do help us on our ALM. Obviously, the pricing is slightly higher, but overall, this transition may still have maybe 10, 15 bps of borrowing cost impact. So that is something we had already read start of the year that maybe we are starting the borrowing cost at 9.2%. It means somewhere at 9.4% average, we will still hold around 9.3%. So large borrowing cost is very much stable. So now the NIM, what we are generating, typically, the NIMs will have a correlation to the credit cost trend what we are witnessing because the operating cost is largely stable when you look at our performance. So today, the 14% NIMs are kind of reflective of the credit cost, what we had over the last 12 months. So even today, if you see our trailing 12-month, credit cost is still more than 4%. It's around 4%, 4.5%. So that's where today the NIMs are higher. It's the current credit cost. So in first quarter, let's say, our annualized credit cost is around 2.8%, 2.9%, if this trend continues for maybe second quarter or third quarter, then the trailing 12-month credit cost will also drop below 4%. It may start trending lower to 3%. So if our credit cost settles around 3%, then 14% NIMs may not be required. Maybe we may even do a 4 and a 5-ish ROA with 13%, 13.5% NIMs. So the NIMs that we are generating, it has to be seen along with the credit cost, what we are incurring to ensure that the final ROE that we generate are in line with what we have guided for. So obviously, maybe currently, what we are envisaging is if the current credit cost trend holds, then maybe in third quarter, we may have to pass on some benefit to the customers. Otherwise, we will keep making 6% ROE. So that is something which we have -- we will not want to obviously achieve on a continuous basis. For the quarters, we may deliver a higher ROA because on a trailing 12-month basis, we have to recoup the profitability and ensure that our cross cycle returns are in the range of 4.5% and ROEs are around 18%, 20%. So that is something which will be in back of our mind. So obviously, even if we -- we don't need a 200 bps pricing, but I mean as of now, maybe we may have to take 50 bps pricing in third quarter, maybe another 50 bps in fourth quarter. So it will happen gradually. It will not happen at 1 shot. And it will be really linked to the credit cost trend because of any reason the credit cost stays elevated or if it again goes up, then we did not pass on the benefit as well. So it is a purely it is linked to how the credit cost trend is shaping up. . And that leaves us with cyclical push in to protect our ROA and ROE in the coming years. So currently, we are much, much comfortable on the guidance trend. So obviously, if we are able to repeat this performance over the coming quarters, then obviously, there will be an outperformance on the guidance. But we will observe 1 more quarter, and then we will take a call. But we do not see so much of pricing reduction to be undertaken. And even if we cut, say, 50 bps in Q3, 50 bps in Q4, for example, obviously, the impact will be gradually phased. So typically, it takes around 15 to 18 months for the assets to move. So that leaves us with significant time to manage the overall profitability and be within the guided range.

And Nilesh, even in the credit cost, right, I mean, this quarter is annualized to 18%, but you still have write-off related rate cut. So when you go ahead, once you are -- yes, once the write-off...

Now we don't have.

You had. In this quarter, you had. No. So I'm just saying now the NPA level is going to recede further and hence, the write-off related credit costs will also come down. But you still you're guiding to 2% to 4% credit cost. So how cushioned are we? I mean, so I think there seems to be a good amount of cushion. And if you can measure or specify that cushion from a PAR acquisition rate point of view, what have you buried there in this 3% to 4%? Are you already [ agreeing ] [ 20 bps ] 30 bps of monthly PAR accretion versus the current trend of 10, 15 basis points? So that is the any event, it can be absorbed. .

Yes. So see, largely the write-off related component will come down because the write-off, what you have seen in the first quarter, this is primarily linked to the spreads we came out in the previous year second quarter. And the improvement we -- the improvement was very much visible from November last year. So that's where the second quarter, whatever elevated stress levels, they have come for write-off now. So from second quarter onwards, we will have a normative write-off, and that's where you will see the write-off impact on credit cost will come down. So when we gave a 3% to 4% credit cost guidance, obviously, we had 2 factors in front of us. One is the West Asia crisis. And secondly, obviously, we had to see how the monsoon is shaping up because there was a lot of news flow on how the monsoon is going to pan out in this year. So that's why we have kept this range. So we have that cushion. I mean if everything goes well, we may be -- we may continue to do what we have done in the first quarter. But we have kept that cushion which we will -- as we said, we will see 1 more quarter. And if we believe that we are not seeing any upside risks to the credit cost, then we may tend towards the lower end of the credit cost guidance, what we have put for the year.

[Operator Instructions] The next question is from the line of Nidhesh from Investec.