Buy Spandana Sphoorty; target of Rs 815: ICICI Securities

ICICI Securities research report on Spandana Sphoorty

Spana Spandana Sphoorty (Spandana) has embarked on a transformation journey to build a sustainable long-term micro-finance lending model since the management change in Mar’22. While most building blocks are in place like revamped HR practices, strengthened mid-level management team, significantly reduced stressed asset pool (GNPL at 2.1% with ~70% PCR as on Mar’23) and growth revival in FY23 (AUM growth of 29% in FY23 vs 19% decline in FY22), management is now intending to migrate to the most preferred ‘weekly collection’ model from current monthly collections. However, change in collection frequency would be gradual – i) in phase 1, only new branches would be rolling out weekly collections, ii) in phase 2, new loans at existing branches would be disbursed on a weekly model and iii) in the last phase, all outstanding loans would move to the weekly collection model. As on Mar’23, 100 branches of 1,227 are following the weekly collection model. We believe migration to weekly collection is a right step towards ensuring lower credit cost in next credit cycle.

Outlook

Considering the operational stability, gradual recovery in earnings led by credit cost normalisation and improved visibility on achieving >4% RoA by FY24E, we maintain BUY on Spandana with an unchanged target price of Rs815, valuing the stock at P/BV multiple of 1.5x Sep’24E BVPS.