IGI Logo

Spandana continued to deliver on its trajectory of improved performance and reported a standalone PAT of INR 1.1bn (-4% QoQ, +12% vs JMFe) on account of a) steady AUM growth of 88bn (+61% YoY /+4.0% QoQ) b) improvement in NIMs by +38bps QoQ due to significant improvement in yields at 24.0% (+120bps QoQ) opposed to marginal increase in COB at 12.5% (+9bps QoQ). and c) improving asset quality metrics with the current book (0- dpd) now stands at 97.01% vs 96.39% QoQ aided by strong collection efficiency of 98.1% vs 97.6% QoQ. Headline asset quality was also helped by lower credit cost of 1.3% as against mgmt. expectation of 1.5-1.6%. After a turbulent couple of years, SSFL is now gradually turning towards a sound microfinance business with new leadership team on board and operational transformation underway. Further, in 1Q24 Spandana also launched LAP in Rajasthan and plans to launch Nano enterprise loans (ATS ~INR60K) this year in select geographies and scale it up to INR 20bn FY25E. We expect AUM growth of CAGR ~35% over FY23-25E. With the current book now inching up to 97.01% in 1Q24 and provision coverage now shored up to >70%, we believe past stress is under control and we build average credit costs to normalize to c.1.88% of loans for FY24E/FY25E. Stability in leadership team, strong capital levels and tailwinds in microfinance give us confidence that SSFL could deliver avg. RoA/RoE of 4.15%/16.2% FY25E, despite near term headwinds of higher opex on account of branch/employee additions.. Maintain BUY with target price of INR 960, valuing SSFL at 1.7x FY25E P/B. Spike in credit costs and/or inability to demonstrate sustainable growth trajectory are key risks to our call

* Healthy AUM growth driven by geographic diversification: Spandana witnessed healthy AUM growth at INR 88bn (+61% YoY /+4.0% QoQ) on the back of steady disbursements (INR 16.6bn, +26.1% YoY). The growth was led by continued acquisition of new customers (+2.6 Lakh, +144%YoY) of which 26% were contributed by newer geographies. Management aspires to increase the MFI AUM to INR 120bn by FY24E (~35- 40% growth) and INR 150bn by FY25E (~25% growth) with increased geographic diversification and plans to increase its branch network to 1,500 (from current 1,303) by end of FY25E. In 1Q24 Spandana also launched LAP in Rajasthan and plans to launch Nano enterprise loans (ATS ~INR60K) this year in select geographies and scale it up to INR 20bn FY25E. We expect AUM growth of CAGR ~35% over FY23-25E.

* Steady operational performance with sustained NIMs: NII stood at 2.9bn (+109% YoY/ - 9% QoQ) on the back of elevated interest expense and higher opex (+17% QoQ) leading to moderation in PPOP at INR 1.7bn (+329.4% YoY /-29.4%QoQ) driven by i) increase in number of branches ii) higher employee cost due to annual increment cycle and iii) increase in overall headcount. NIMs expanded to 14.2% (+38bps QoQ, +434bps YoY) due to significant improvement in yields at 24.0% (+120bps QoQ) opposed to marginal increase in COB at 12.5% (+9bps QoQ). ROA/ROE for the quarter was at 5.9%/15.2% aided by lower credit costs and improved NIMs. Management expects to sustain expansion in margins in the near term with expected increase in yields to 25% and liability repricing leading to lower borrowing cost aided by improved credit rating

* Asset quality normalisation aided by small ticket loans: GNPA/NNPA improved to 1.63%/0.49% (-44bps QoQ/-15bps QoQ) and the current book (0-dpd) now stands at 97.01% vs 96.39% QoQ aided by strong collection efficiency of 98.1% vs 97.6% QoQ. Spandana maintained its provision coverage to >70%; with lower credit cost of 1.3% as against mgmt. expectation of 1.5-1.6%. We expect the asset quality to remain steady with average credit cost factored at 1.88% over FY24-25E.

* Valuation & view: We believe Spandana to deliver on its return metrics with continued momentum in loan growth, gradual impact of operating leverage and stable asset quality supported by tailwinds in microfinance industry with ROA/ROE at 4.15%/16.2% FY25E. Maintain BUY with target price of INR 960, valuing SSFL at 1.7x FY25E P/B.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer