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Building momentum through operational recalibration PPoP turns positive; expansion in margins aided by lower income reversals

* Spandana Sphoorty’s (SPANDANA) 1QFY27 PAT grew ~125% QoQ to ~INR119m (~28% miss). NII grew 14% YoY/~40% QoQ to ~INR1.5b (~18% beat). Non-interest income stood at ~INR230m (v/s est. of ~INR573m), primarily driven by lower assignment income.

* Opex declined ~26% YoY to ~INR1.5b (~9% lower than est). PPoP stood at ~INR163m (~29% beat; PQ: loss of INR100m). Credit costs (net of recoveries) resulted in provision writebacks of INR13m, resulting in annualized credit costs of -0.1% (PQ: -2% and PY: 34%).

* SPANDANA has guided for a significant scale-up in the loan portfolio, targeting AUM of INR60-65b and ~INR100b by Mar’27 and Mar’28, respectively. This will be supported by disciplined lending, calibrated expansion, and improved operational productivity. The company plans to build a stronger presence in markets such as Maharashtra and Tamil Nadu, where it currently has a low market share, while optimizing its existing branch network across core states to enhance productivity.

* SPANDANA remains focused on acquiring and retaining quality customers, including existing borrowers and customers with strong repayment histories at other institutions. The individual loan product pilot in Madhya Pradesh, along with technology initiatives such as the new LOS platform, is expected to strengthen product capabilities and support scalable growth.

* The company expects margins to expand gradually, supported by a favorable portfolio mix, moderate improvement in yields, and lower income reversals. The expected decline in incremental borrowing costs, aided by higher bank borrowings and access to liabilities under the credit guarantee scheme (MFI), is expected to reduce the overall cost of funds and provide further support to margins.

* SPANDANA remains focused on sustaining its growth trajectory through calibrated expansion, improved operating efficiency, and strengthened risk controls. While the business momentum is improving, we will closely monitor the pace of disbursement scale-up, the company’s ability to control opex, and its progress in improving access to liabilities.

* We increase our FY27 EPS estimates by ~40% to factor in higher NIMs and lower provisions. The stock trades at 0.9x FY27E P/BV. We expect SPANDANA to deliver a CAGR of 43%/42% in disbursements/AUM over FY26- FY28, leading to an RoA/RoE of 3.2%/11% in FY28. Reiterate our Neutral rating with a TP of INR290 (based on 0.9x Mar’28E BV).

AUM grows ~11% QoQ; new portfolio contributes ~91% of MFI AUM

* AUM declined ~1% YoY but grew ~11% QoQ to ~INR48.9b. Disbursement grew ~390% YoY but declined ~11% QoQ to INR13.7b.

* Total borrower count declined ~4% QoQ to 1.11m. Loan Officers (net) declined by ~410 during the quarter, and SPANDANA currently employs ~6,750 loan officers.

* The portfolio originated under new credit rules now contributes ~91% of MFI AUM. We expect SPANDANA to deliver an AUM CAGR of ~42% over FY26-28

Valuation and view

* SPANDANA reported a steady quarter, with sequential improvement in margins and asset quality, although disbursements moderated QoQ. Management remains positive on the growth outlook and has set an ambitious AUM target of ~INR100b by end-FY28. While the company continues to make steady progress, we will closely monitor the sustainability of margin expansion, disbursement pickup, and the opex trajectory as it scales operations.

* The stock trades at 0.9x FY27E P/BV. We expect SPANDANA to deliver a CAGR of 43%/42% in disbursements/AUM over FY26-FY28, leading to an RoA/RoE of 3.2%/11% in FY28. Reiterate our Neutral rating with a TP of INR290 (based on 0.9x Mar’28E BV).

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