Buy Spandana Spoorthy Financial; target of Rs 950: ICICI Securities

ICICI Securitie's research report on Spandana Spoorthy Financial

The combination of India’s general elections, heat wave and higher attrition at select states led to collection falling to 94% vs. 96.5% QoQ. The resulted in PAR 31-60 DPD portfolio increasing to 1.68% vs. 0.9% QoQ and 61-90 DPD rising to 1.5% vs. 0.6% QoQ. Total 1+ DPD portfolio stands at 9%, as on Jun’24. Similarly, GNPL ratio rose to 2.6% vs. 1.5% QoQ and NNPL to 0.5% vs. 0.3% QoQ. However, management highlighted that industry outlook remains strong, as they do not envisage stress on rural income, credit demand, cash flow etc.; also, barring a few pockets (in terms of overleveraging), customer behaviour remains healthy.

Outlook

While we slash our earnings estimate by 25% for FY25 and 12% for FY26, factoring in higher credit costs, we maintain BUY due to Spandana’s inexpensive valuation of 1x on FY26E PBV. We revise our TP to INR 950 (earlier INR 1,200) as we cut our target multiple to 1.5x vs. 1.8x earlier.