On Monday, CLSA downgraded CreditAccess Grameen Ltd (CREDAG:IN) stock from Outperform to Hold, significantly reducing the price target to INR910.00 from the previous INR1,800.00. The revision followed the company's reported second-quarter financial results for the fiscal year 2025, which revealed a sharp decline in net profit on both a year-over-year and quarter-over-quarter basis.
The net profit for CreditAccess Grameen in the second quarter of the fiscal year 2025 was notably affected, decreasing by half due to a high annualized credit cost of 6.5%. The company's management has revised its loan growth forecast, now expecting an increase of only 8%-12% and has also increased its credit cost guidance to a range of 4.5%-5% for the fiscal year 2025.
The financial institution has experienced significant deterioration in its delinquency rates following the introduction of new operational guidelines. The reported slippage rates for the second quarter of the fiscal year 2025 stood at 1.5% for loans 60 days past due (DPD) and 1% for those 90 DPD. In response to these developments, CLSA has adjusted its net profit estimates for CreditAccess Grameen for the fiscal years 2025 to 2027, projecting a reduction ranging from 25% to 40%.
The return on equity (ROE) forecast for the company in the fiscal year 2025 has also been revised downward by CLSA, now standing at 14%, which is over eight percentage points lower than previous estimates. According to CLSA, the company is expected to take several quarters to recover from the current downturn. However, it is anticipated that stricter underwriting standards will eventually lead to more balanced growth for CreditAccess Grameen.
The downgrade and the new price target reflect CLSA's reassessment of CreditAccess Grameen's financial outlook and the challenges it faces in the near term. The firm's analysts expect that while a recovery is possible, it will require time and the implementation of more rigorous underwriting policies.
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