Buy Spandana Sphoorty Financial Ltd For Target Rs.1,200 - Motilal Oswal Financial Services Ltd
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Articulation of next five-year target from a position of strength
Targets AUM of ~INR280b by FY28 with RoA of >4.5% and RoE of >18%
? At its analyst/investor meet, Spandana Sphoorty’s senior management team outlined the company’s vision for FY28 and talked about its strategies for distribution, risk management, liabilities, technology and people’s practice.
? The management targets to achieve AUM of ~INR280b by FY28 and a customer base of ~6.2m. It plans to scale up its branch network to ~1,950 (~1520 now) and increase its employee strength to ~21k (~12K now). It has guided for credit costs of 4.5% and RoE of >18%, along with CRAR of ~25% (Refer Exhibit 11).
Key takeaways from the meet:
? Guidance of FY28 AUM at ~INR280b implies a ~23% CAGR over FY25-FY28, which we believe is realistic and not aggressive. This growth will be driven by customer acquisitions while keeping ticket sizes lower (capped at ~INR80k) and closely monitoring total debt of a customer.
? Spandana expects 75-80% of its disbursements/collections to move to the weekly model by FY28 (vs. current level of ~7%). It expects short-tenor loans of 12-18 months to contribute 30-45% of the tenor mix.
? There is enough headroom for growth through the JLG model. The company may also offer individual retail lending, but it will be 5%. At an appropriate stage, Spandana will be looking to build a management overlay and counter-cyclical provision buffers.
? Kedaara, the PE promoter of the company, will consider an exit when the opportunity arises, but it will be done smoothly with Spandana better off than what it is today.
Distribution: Improving productivity of branches and employees
? AUM per loan officer is INR11-12m and Spandana anticipates that it will improve to INR14-15m over the next few years. The number of loans per borrower is 1.1 and will increase once it moves to a weekly collection model.
? Improvement in efficiency will come from an increase in caseload for loan officers. Spandana has guided that borrowers per loan officer will increase to 360-365 by Mar'24 and 450-475 by Mar’28 (vs. ~320 as of Sep'23) ? The company will focus on the centers and group size, along with mandatory loan utilization checks (LUC).
? Rolled out two new products: 1) LAP, 2) nano-enterprise loans. It does not aspire to cross-sell LAP (ATS: INR400-450k) and nano-enterprise loans to MFI customers. Guided for 50 Non-MFI branches by FY24 and 200 by FY25. NonMFI AUM will grow to INR30-35b with 250-300K borrowers by FY28.
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SEBI Registration number is INH000000412
