Motilal Oswal Financial Services has reiterated its BUY recommendation on CreditAccess Grameen (CREDAG) with a target price of Rs1,600, implying an upside of approximately 22% from the current market price of Rs1,306. The brokerage believes the company is transitioning from a stress-repair phase to a structurally stronger growth trajectory, supported by margin expansion, normalization in credit costs, and retail-led diversification. With return ratios poised to rebound sharply by FY28E, Motilal Oswal sees the lender entering a new phase of re-acceleration.

Over FY26–28E, the brokerage models an AUM/NII/PPoP/PAT CAGR of 21%/16%/13%/50%, with RoA and RoE improving to ~4.5% and ~17.5%, respectively.

From Repair to Re-Acceleration: Earnings Rebound Taking Shape

CreditAccess Grameen is emerging from the recent MFI stress cycle with improving operating momentum and resilient portfolio retention. Despite elevated write-offs during the downturn, the company has broadly retained its AUM — outperforming peers that witnessed sharper contraction.

A key differentiator has been borrower stickiness. Nearly 70–80% of disbursements are extended to existing customers, reflecting deep ecosystem engagement and gradual normalization in group repayment dynamics.

With Karnataka-related stress largely stabilizing and PAR accretion moderating sharply, the earnings recovery appears increasingly credible.

Retail Finance: The Structural Growth Engine

Retail finance has emerged as the next leg of growth. Its share in AUM has increased from ~11% to ~14% as of Dec’25.

The segment comprises:

Unnati loans: AUM ~Rs17bn, ATS ~Rs200k

Vishesh loans: AUM ~Rs16bn, ATS ~Rs80k

Asset quality remains robust, with PAR 30+ below ~2% across unsecured retail products.

Importantly, unsecured retail loans are extended only to graduated borrowers within CREDAG’s ecosystem, limiting underwriting risk.

Management targets a gradual move toward a 50:50 secured–unsecured mix within retail finance, enhancing diversification.

While MFI growth is expected to moderate to 10–12%, retail finance is likely to expand at over 20%, driving overall AUM growth of ~21% CAGR over FY26–28E.

Margins and Spreads: Set for Structural Expansion

Motilal Oswal expects portfolio yields to rise toward ~21.5%, implying 30–50bp improvement from current levels.

Borrowing costs are expected to stabilize at ~9.2–9.3%, driving a spread expansion of ~50–60bp.

The brokerage models:

With 65% of borrowings linked to short-tenor MCLR rates, funding cost transmission remains efficient.

Asset Quality Normalization: Credit Costs to Fall Sharply

PAR 15+ accretion declined sharply from 0.84% in Mar’25 to 0.18% in Dec’25, reflecting normalization across geographies.

Excluding the Karnataka ordinance impact, FY26 credit cost would have resembled a near-normal year at ~3.5–4%.

Motilal Oswal models:

Management guides toward ~3–3.5%, aspiring to ~2.5–3.0% as normalization strengthens.

Operating Leverage and Efficiency Gains

CREDAG added ~165 branches in 9MFY26, taking its footprint to ~2,222 branches.

Despite expansion, the company has not materially altered its cost structure or added significant collection manpower, reflecting confidence in operational systems.

The C/I ratio is expected to remain in the 33–34% range over FY26–28E, with operating leverage improving as productivity rises.

Valuation and Investment Case

At ~2.3x FY27E P/BV and ~14x FY27E P/E, valuations appear reasonable relative to medium-term RoE potential of ~17–18%.

The brokerage’s valuation matrix versus peers is summarized below:

Technical and Investment Levels

Current Market Price: Rs1,306
Target Price: Rs1,600
Upside Potential: ~22%

Support Zone: Rs1,200–1,240
Strong Accumulation Zone: Rs1,100–1,150
Breakout Confirmation: Sustained move above Rs1,400

Bottomline for Investors: A Re-Rating Candidate in the MFI Space

CreditAccess Grameen stands at an inflection point. Margin expansion, normalization in credit costs, disciplined underwriting, and retail-led diversification are converging to restore profitability metrics toward historical highs.

With PAT expected to grow at ~50% CAGR over FY26–28E and RoE rebounding to ~17–18%, the stock appears well-positioned for gradual re-rating.

Motilal Oswal’s BUY call with a target of Rs1,600 reflects confidence that CREDAG’s repair phase is over — and the re-acceleration cycle has just begun.