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Spandana Sphoorty Financial Ltd

| Q3 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤31st Jan 26

Summary : Spandana Sphoorty is demonstrating a turnaround with strong new loan book performance, improved collection efficiency, and increased funding, while strategically consolidating operations and planning for sustainable AUM growth amidst past challenges.

Management Perspective positive : The MD & CEO stated, 'The winds of change are quite visible' and 'things are looking reasonably settled or at least improving.' He also noted 'lenders reposing faith in us' and 'PPOP positive first time in about 2-3 quarters,' indicating a strong belief in the company's turnaround and future prospects.

Concall Report Analysis & Insights

Business Overview

  1. New loan book, originated post-April 2025, constitutes 58% of AUM with 99.8% collection efficiency.
  2. Company raised Rs. 1,700 crores in Q3, demonstrating renewed lender confidence.
  3. PPOP turned positive for the first time in 2-3 quarters, indicating operational improvement.
  4. Gross AUM increased by 1.8%, with standalone GNPA down to 2.6% and NNPA to 0.5%.
  5. Yield improved to 22.4% from 19.6%, and NIM expanded to 11.1% from 8.4%.

Future Growth Prospects

  1. New book expected to reach 90% of overall AUM by end of the financial year.
  2. Plans to consolidate non-productive branches from 1,500 to 1,250 for efficiency.
  3. Subsidiary Criss Financial to merge with parent, streamlining operations and costs.
  4. Implementing a new LOS platform (Perfios) to enhance customer engagement and efficiency.
  5. Targeting 25-30% AUM growth, potentially reaching Rs. 9,000-10,000 crores by FY'28.

Management Insights

  1. MD & CEO Venkatesh Krishnan, who joined two months ago, emphasized visible winds of change and improving conditions.
  2. Management highlighted strong collection efficiency of the new book, driving confidence for disbursements.
  3. A new Chief Transformation Officer has joined to re-evaluate and tweak business operations.
  4. The company is focused on sustainable growth, gradually building business momentum rather than sharp spikes.
  5. Management expects yield and NIM to continue improving as the stronger new book replaces the older one.

Signs of Skepticism

  1. The DTA of Rs. 700 crores is significant, almost 1.5 times the market cap, raising questions about its full realization.
  2. Despite positive outlook, high rejection rates for new loans (60%) could impede aggressive growth targets.
  3. Credit rating agency highlighted frequent management changes and attrition as a hurdle to normalization.
  4. The credit cost peak for Criss Financial's individual loan book remains a concern.

Risk Factors

  1. Company experienced struggles in previous quarters, indicating past operational challenges.
  2. New labor code implementation resulted in a one-off cost of Rs. 8.4 crores.
  3. High rejection rates (around 60%) for new loans persist in the MFI industry.
  4. Credit rating report highlighted frequent senior and mid-level management changes as a hurdle.
  5. Regulators are not keen on institutions in this segment showing 25-30% growth.

Good To Know

  1. MD & CEO Venkatesh Krishnan joined on November 27, 2025, from HDFC Bank.
  2. The company maintains 80% provisioning across all buckets on its balance sheet.
  3. Cash and bank balance stood at a healthy Rs. 1,626 crores at the end of December.
  4. The overall NPA pool is approximately Rs. 2,700 crores, with recovery efforts targeting Rs. 20-25 crores monthly.
  5. The company's current lending rates hover between 23% and 26%, decreasing with customer vintage.

Key Drivers

  1. New book shows strong collection efficiency.
  2. Lenders reposing faith, increasing funding.
  3. New LOS platform to boost efficiency.
  4. Credit guarantee scheme expected soon.

Key Analyst Discussions

Competitive Environment

  1. Rejection rates are currently around 60% due to MFIN guardrails and industry impact.
  2. SRO is actively monitoring compliance, making breaches of guardrails short-lived for MFIs.

Market Trends & Consumer Behavior

  1. The company aims for a 40-60% or 50-50% mix of new versus existing customers for growth.
  2. Management believes there are still ample new customers in the market to acquire.

Financial Highlights

  1. January collection efficiency and disbursements are trending better than December.
  2. Q4 disbursements are targeted at Rs. 1,500 crores, aiming for Rs. 500-600 crores monthly thereafter.
  3. Bank loans currently contribute 42% of borrowings, expected to increase to 60% with PSU bank participation.
  4. Total slippage for the quarter was Rs. 152 crores, with a credit cost of Rs. 58 crores after recoveries.
  5. Q3 interest reversal was Rs. 14 crores, a significant reduction from Rs. 33 crores in Q2.

Product Composition

  1. Criss Financial's book includes Rs. 350 crores in individual loans and Rs. 300 crores in loans against property (LAP).
  2. LAP book is performing well with GNPA under 1%, while individual loans require collection focus.
  3. New customers typically receive Rs. 50,000 loans, while existing customers can get up to Rs. 1,10,000.
  4. The company plans to grow its LAP book from Rs. 300 crores to Rs. 1,000 crores in the next couple of years.

Strategic Considerations

  1. The company aims for 25-30% AUM growth over the next 2-3 years, potentially higher from a low base.
  2. Attrition at the ground level is expected to decrease as business conditions improve.
  3. The CGFMU scheme is being evaluated for the next financial year, not considered beneficial currently.
  4. Loan officer count is expected to stabilize between 4,800 and 5,500, improving productivity.
  5. The company aims to break even on a consolidated basis by Q4 FY'26.