Buy Spandana Sphoorty: target of Rs 690: ICICI Securities

ICICI Securities research report on Spandana Sphoorty

Spandana Sphoorty Financial (Spandana) in Q1FY20 continued its proactive approach in strengthening balance sheet by building additional Covid-19-related provisions at Rs0.9bn (~130bps of AuM) and taking cumulative contingency buffer to 320bps - highest within the MFI space. Notably, collection efficiency improved steadily - from lows of 2% in April, it improved to as high as 92% as on 30th August’20 with customer activation remaining robust at ~87%. Better-thanindustry collections were supported by A) higher rural-based customers (~95%), B) bi-weekly collection model, C) ability to extend emergency loans to needy borrowers and D) effective communication with borrowers about cost of moratorium & benefits of maintaining good payment track record.

Outlook

While ~13% inactive customer base poses near-term risk on asset quality, diversified operations with 95% of districts having.