Buy Spandana Sphoorty Financial; target of Rs 800: YES Securities

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YES Securities' research report on Spandana Sphoorty Financial

Spandana reported robust AUM growth of 16% qoq and 56% yoy in Q4 FY20. Borrower base grew 5% qoq, after being static in preceding three quarters. AUM/Borrower jumps 11% qoq and 50% yoy to Rs26,600 (still materially lower than industry average). Company made additional provisions of Rs1.29bn (2.75% of on-BS loans) for potential Covid impact. Even adjusted for it, the credit cost was sequentially higher due to write-off of the impacted portfolio in coastal Karnataka (adverse external influence) and Maharashtra (hit by floods). Assignment income was substantially higher at Rs1.09bn driven by Rs12.6bn worth of assignment done during the quarter. This mitigated the impact of higher provisions on PAT and annualized RoA stood above 5%. Adjusted for lumpy assignment income and additional provisions, PBT declined 2% qoq but grew 20% yoy.

Outlook

We built-in a near worst case scenario of 10% AUM growth and 9% credit cost (on opening on-book portfolio) in FY21. FY22 should be a normal year, but we factor higher-than-usual credit cost. Spandana trades at 1x/5.6x FY22 ABV/EPS. Retain BUY rating with a 12m TP of Rs800. We are positive about profitability/growth normalization in FY22, robust CAR (supportive of liquidity position) and attractive valuation.

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