Microfinance institutions (MFI) is expected to see huge opportunity over the next decade, global brokerage house Nomura mentioned in a recent report.
Penetration levels in the MFI space have already improved to 38 percent in FY20, still, the brokerage sees opportunities in the rural market to remain large. It forecasts 18 percent and 16 percent assets under management (AUM) CAGRs over the next 5 and 10 years, respectively with the rural segment growing at a faster clip. Within this, it expects rural to grow faster at 21 percent in 5 years.
The brokerage believes rural-focused NBFC-MFIs are best-placed to capitalize on this opportunity with 1) a large segment of the MFI players either converting to banks/SFBs (and diversifying away from MFI); 2) the COVID-19 impact further accelerating consolidation among top players, and 3) improving funding environment.
Among individual stocks, Nomura initiated coverage on CreditAccess Grameen with a 'buy' call and a target of Rs 950, implying a 24 percent upside.
As per the brokerage, CreditAcess is tailored to capitalize on the opportunity and believes the firm is best-positioned to capitalize on the opportunities in the rural market.
With the firm's rural focus, strong operational practices, and strong parentage aiding a 19 percent AUM CAGR over FY20- 23, it believes Credit Access has been ticking the right boxes with its prudent underwriting and its customer-centric approach.
"The pandemic remains a near-term concern and resurgent cases in Maharashtra have led to relatively lower collection efficiency for the firm. However, we think standard provisions of 3.5 percent of AUMs, robust PPOP/AUMs and strong capital position should not only aid it to absorb the COVID-19 impact but also benefit from the growth opportunity over the medium term," noted the brokerage.
It also upgraded Ujjivan to 'buy' and re-iterate its positive stance on Equitas and Bandhan Bank.
(Edited by : Abhishek Jha)