Spandana Sphoorty Shares Fell ~17% After Reporting Q2 FY25 Results

On October 28, 2024, Spandana Sphoorty Financial Limited announced its unaudited financial results for the quarter ended September 30, 2024.  The company reported an asset under management (AUM) of ₹10,537 crore, representing an 8% year-over-year growth from ₹9,784 crore in Q2 FY24. However, disbursements for the quarter were ₹1,514 crore, a significant decline of 40% compared to ₹2,512 crore in Q2 FY24. For the first half of FY25, disbursements totalled ₹3,798 crore, down 9% year-over-year, as the company focused on serving existing borrowers.

Deteriorated Asset Quality

Asset quality experienced temporary disruptions, leading to a rise in non-performing assets. The gross non-performing asset (GNPA) ratio increased to 4.86%, up from 2.60% as of June 30, 2024. Similarly, the net non-performing asset (NNPA) ratio rose to 0.99%, compared to 0.53% in the previous quarter. Despite these challenges, the provision coverage ratio (PCR) remained stable at 79.66%.

Collection efficiency also saw a decline, with gross collection efficiency at 93.7% for Q2 FY25, down from 97.5% in Q1 FY25. The net collection efficiency decreased to 90.8%, compared to 94.0% in the previous quarter.  In terms of borrowings, Spandana continued to optimise its borrowing mix, with banks now accounting for 54% of total borrowings. The company mobilized ₹1,584 crore during Q2 FY25, reflecting a 50% decrease compared to Q2 FY24 and remaining flat compared to Q1 FY25.

Financial Highlights

Financially, Spandana reported a total income of ₹707 crore in Q2 FY25, which is a 10% year-over-year growth. The net interest income stood at ₹341 crore, reflecting a 9% increase. However, the yield declined by 202 basis points year-over-year to 22.4%, while the cost of borrowings decreased by 77 basis points to 11.8% in Q2 FY25. The pre-provision operating profit (PPOP) was ₹228 crore for the quarter, down 12% year-over-year. Additionally, higher credit costs due to increased delinquencies resulted in a reported loss of ₹216 crore for the quarter, compared to a profit after tax (PAT) of ₹125 crore in Q2 FY24 and ₹56 crore in Q1 FY25.

Mr. Shalabh Saxena, CEO and Managing Director, while announcing the results stated, “Microfinance sector has been facing multiple headwinds over the last two quarters. The operations that were initially impacted by long-drawn elections and intense heat waves during the summers of 2024 were further disrupted by heavy rainfall and floods in certain states during the months of July to September 2024. A number of other issues like higher-than normal attrition levels, localized drives like Karza Mukti Abhiyan and increasing leverage of borrowers all had an impact on the sector. 

He added, “Keeping all these factors in view, Spandana was cautious and very selective in its lending during the quarter. The focus during the quarter was on improving portfolio quality and serving existing customers. Hence, while the Income for the quarter was up 10% YoY to ₹707 Cr and NII was up 9% YoY to ₹341 Cr, the elevated delinquencies had a bearing on the impairment costs resulting in a reported loss of ₹216 Cr. GNPA at the end of the quarter was 4.86% while NNPA was 0.99%. The management team has taken up various measures to address the challenges including increasing bench strength, strengthening branch-level controls, introducing technology and people interventions, refining of credit policy and focusing on softer aspects. With improvement in the operating environment and the various initiatives undertaken, we expect the situation to normalize in the coming quarters.” 

On October 29, 2024, Spandana Sphoorty Financial shares opened at ₹401.60 and touched the day low of ₹381.00  at 11:25 AM, reflecting a fall of ~17.20% from the previous close.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.