Buy Spandana Spoorthy Financial; target of Rs 1100: ICICI Securities

ICICI Securities research report on Spandana Spoorthy Financial

Since the new management took charge in Mar’22, Spandana Spoorthy (Spandana) has embarked on a transformation journey to build a sustainable long-term microfinance lending model. In all 5 quarters since then, earnings trajectory kept on improving and in Q1FY24 its RoA expanded to 5.9% vs 5.1% in Q4FY23, 3.7% in Q3FY23, 2.9% in Q2FY23 and net loss in Q1FY23. Earnings in Q1FY24 were driven mainly by strong top-line growth (adjusted for assignment income) and credit cost normalisation. Total provisions fell to INR 286mn translating into credit cost moderating to 1.4% vs ~7% in FY23. With management highlighting further yield expansion in Q2/Q3FY24 and credit cost at 1.6% in FY24, we increase our earnings estimate by 23% each year in FY24E/FY25E.

Outlook

Maintain BUY with a revised target price of INR 1,100, valuing at 2x Sep-24 BVPS vs 1.5x earlier.