SPANDANA - Spandana Sphoorty Financial Limited Share Price

Management Outlook:
Spandana's management anticipates gradual normalization of the microfinance sector by Q1/Q2 FY26, driven by improved collection efficiency (97.8% in December 2024) and reduced attrition. They emphasize cautious growth (targeting ~15% AUM growth for FY26) post-stabilization, bolstered by recovery efforts (INR21 crore recovered in Q3), liquidity strength (17% cash/assets), and planned capital raise (INR750 crore). Regulatory guardrails (3-lender cap by April 2025) are expected to instill long-term discipline despite short-term disbursement impacts.

Key Points:

1. Portfolio Quality: GNPA at 4.85% with 80% provisioning; dedicated 600-member recovery team expanding to 1,000 by March 2025.
2. Operational Strategy: Geographic diversification (top 4 states reduced to 50% of portfolio), weekly repayment focus, and controlled disbursements (-43% YoY).
3. Financial Health: CRAR at 35.7%, liquidity maintained; net loss of INR440 crore due to provisions.
4. Market Trends: Southern India outperforms North; new products (LAP/Nano loans at INR180 crore AUM) show potential.
5. Challenges: Staff attrition (60% for LOs), customer over-leverage, and post-COVID repayment behavior affecting collections.
6. Regulatory Compliance: MFIN guardrails to enhance sustainability; cautious lending aligned with household indebtedness norms.

Question 1: How will the new MFIN guardrails impact asset quality in Q1 FY26, and what AUM growth can be expected for FY26?
Answer: The guardrails (limiting lenders per borrower) may temporarily pressure asset quality but improve long-term discipline. AUM growth is cautiously targeted at 15% for FY26, focusing on consolidation and stabilization before resuming growth.

Question 2: What are the X-bucket collection efficiency trends in Bihar, Karnataka, and Madhya Pradesh?
Answer: Bihar (97.55%), Karnataka (96.37%), and Madhya Pradesh (98.52%) showed varied efficiencies in December 2024. Karnataka faced localized challenges, while Bihar lagged slightly, but improvements were expected as external issues resolve.

Question 3: What were the PAR 0 (current) and PAR 1-30 DPD figures for Q3 FY25?
Answer: PAR 1-30 DPD decreased from INR 527 crores in Q2 to INR 348 crores in Q3, reflecting reduced early-stage delinquencies due to improved collections.

Question 4: Why did Spandana fail to meet RBI's 75% qualifying asset requirement?
Answer: Disbursement slowdown and high cash reserves (17% of assets) impacted the ratio. The company is engaging with regulators to address this temporary deviation.

Question 5: Why expand branches amid operational challenges?
Answer: New branches were splits of existing ones to manage portfolio size (over INR 10"“12 crores per branch), not fresh expansions, ensuring operational control.

Question 6: Could MFIN's Guardrail 2.0 (3 lenders per borrower) be deferred?
Answer: Unlikely. Guardrail 2.0 will be implemented in April 2025. Spandana voluntarily adopted stricter norms (3 lenders) to preempt risks.

Question 7: Why did lender overlap (Spandana+4) increase despite Guardrail 1.0?
Answer: Denominator effects (AUM decline) and customer migration between buckets influenced the rise. Guardrail adherence is mandatory, with technical lags possible.

Question 8: Were there covenant breaches beyond profitability?
Answer: Only profitability and tangible net worth were impacted. No other breaches occurred, and liquidity (17% cash) and capital (CRAR 35.7%) remain strong.

Question 9: What is the trajectory for net collection efficiency (NCE)?
Answer: NCE improved to 90.7% in Q3, with December X-bucket efficiency at 97.8%. Targets aim for 94"“95% in 2"“3 months and 97% by Q1 FY26 as recoveries accelerate.

Question 10: What caused Criss Financial's INR 50 crore write-off?
Answer: Floods in Andhra Pradesh affected unsecured loans under Criss' Nano/LAP portfolio, leading to slippages and write-offs. The core book remains healthy.

Question 11: Is urgent capital raising needed due to losses?
Answer: The Board approved raising INR 750 crore for stakeholder confidence, though CRAR is robust at 35.7%. Promoters will participate, but timing depends on market conditions.

Question 12: How have center meeting attendance and staff attrition improved?
Answer: Attendance rose from ~50% to 55"“60%; annualized LO attrition dipped to 60% (from higher levels). Hiring "branch quality managers" improved process hygiene.

Question 13: Will write-offs boost future collection efficiency?
Answer: Yes. Post-write-off, the denominator shrinks, lifting efficiency. GNPA recoveries (INR 21 crore in Q3) are rising, with a dedicated 600-member team expanding to 1,000 by March 2025.

Question 14: Are FY25 credit costs likely to persist in Q4?
Answer: Early green shoots (e.g., lower X-bucket flows) suggest stabilization, but cautious provisioning continues. Recovery trends over Jan"“Mar 2025 will dictate near-term credit costs.

Question 15: How do Spandana+4 borrowers perform versus others?
Answer: Spandana+4 borrowers contribute 25% to GNPA vs. 15.8% of AUM, indicating higher risk. Guardrails and customer sequencing of repayments will mitigate this over time.

Question 16: Are non-MFI loans (e.g., fintech) a hidden risk?
Answer: Yes. Spandana now factors household-level indebtedness, not just MFI loans. Guardrails are a baseline; stricter internal policies address broader overleveraging risks.

Question 17: What are recovery rates for Stage 1"“2 buckets?
Answer: Stage 2 recovery efficiency stabilized at ~40% (vs. 45"“50% pre-crisis). Focus remains on curbing X-bucket slippage (97.8% efficiency in December) to reduce downstream defaults.