Buy Spandana Spoorthy Financial; target of Rs 1200: ICICI Securities

ICICI Securities research report on Spandana Spoorthy Financial

Spandana Spoorthy’s (Spandana) core operating performance in Q4FY24 continued to be robust with AUM growth at 15% QoQ primarily led by new customer acquisition (up 12% QoQ) and sharp reduction in cost of borrowing to 11.7% vs 12.3%, thereby, driving 130bps QoQ NIM expansion, resulting in 11% QoQ growth in PPoP. However, transitory impact on 1+ DPD portfolio due to shift in collection frequency to weekly from monthly earlier (hence, higher forward flows) and change in ECL model leading to one-time impact of INR 160mn led to a sequential increase in credit cost to 3.4% vs 3% QoQ. As a result, PAT remained flat QoQ at INR 1.29bn during Q4FY24. While we believe management’s long-term vision of building sustainable and scalable model by shifting collection model from monthly to weekly is a step in the right direction, the same raises concern over medium term credit cost trajectory.

Outlook

However, strong operating profitability may help Spandana in sustaining RoA at >4.5% during FY25-26E. We maintain BUY with a revised target price of INR 1,200 (earlier INR 1,450), valuing the stock at 1.8x (vs 2.2x earlier) Sep’25E BVPS. We cut our earnings estimate by 10% for FY25-26E as we now model higher credit cost at 2.2% vs 2% earlier in FY25E and 2% vs 1.8% earlier in FY26E.Maintain BUY with an unchanged target price of INR 1,010, valuing the stock at 1.5x PBV Sep’25E BVPS.

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