Spandana Sphoorty Rating: Buy- Strengthening of B/S in Q2 augurs well

By: |
November 23, 2020 3:00 AM

Collection efficiency in Oct a surprise; geared up to deal with crisis; TP up to Rs 900

Collections in states like Maharashtra, Odisha and Chhattisgarh remained lower than the average due to lockdown and a few instances of political interference.Collections in states like Maharashtra, Odisha and Chhattisgarh remained lower than the average due to lockdown and a few instances of political interference.

Spandana Sphoorty Financial (Spandana) in Q2FY21 continued its proactive approach in strengthening its balance sheet by building additional Covid-related provisions at Rs 1.14 bn (~155bps of AuM), taking cumulative contingency buffer to ~450bps (highest in MFI space). Notably, collection efficiency improved steadily to as high as 93% in October with customer activation remaining robust at ~94%. Collections in states like Maharashtra, Odisha and Chhattisgarh remained lower than the average due to lockdown and a few instances of political interference.

While the ~6% inactive customer base poses near-term risk, we believe it will navigate through current cycle relatively better than peers due to: (i) diversified operations with 95% of districts having <1% exposure per district; (ii) provisioning buffer at Rs 3.3 bn (4.5% of AuM); and (iii) comfortable capital position (CAR 45%). Maintain Buy with a revised TP of Rs 900 (earlier: Rs 740).

Collection efficiency surprises positively: Spandana’s collection efficiency at 93% in October is one of the highest in MFI space. Customer activation is reflected in non-paying borrowers pool falling to 0.16mn or 6% (5.6% in value). We believe building higher contingency buffer is correct approach in the current scenario given that tail-end risk is yet to unfold. Further, strong PPoP margin at an average of 14% over past 5 quarters and adequate contingency buffer would ensure Spandana navigates through the current challenging cycle relatively better than peers.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Nifty crosses 13,000 mark as all benchmarks hit all-time high records
2Dow Jones hits 30,000 as Wall Street bets on 2021 bounce
3Sebi confirms ban on Karvy Stock Broking for misuse of clients’ securities; passes final order