SPANDANA - Spandana Sphoorty Financial Limited Share Price

Management provided an outlook focusing on cautious growth and operational efficiency amid challenges faced by the microfinance industry. Key forward-looking points include the following:

1. Equity Raise: Spandana Sphoorty is progressing with plans to raise up to Rs. 750 crores, with a potential rights issue expected in Q2 FY '26. This will include promoter participation.

2. Growth Projections: The company aims for a 20% growth in Assets Under Management (AUM) during FY '26, despite a 43% decline in AUM to Rs. 6,819 crores in FY '25. Management indicated that disbursement for the year was calibrated at Rs. 5,605 crores, reflecting a 48% year-on-year decrease.

3. Loan Officer Staffing: They project to improve the borrower-to-loan officer ratio to 340 by end-FY '26 from 228 currently, which aims to enhance efficiencies in servicing customers.

4. Collection Efficiency: While March 2025 saw an improvement in collection efficiency to 98.9%, management anticipates this performance to continue but noted a slight dip to around 97% in recent months for April and May 2025.

5. Portfolio Quality Management: The management underlined a commitment to maintaining strict credit checks to minimize risks, with a focus on ensuring that 51% of existing borrowers qualify under new credit rules, aiming for better recovery rates.

6. Cautious Lending Strategy: There will be a strong emphasis on operational improvements through additional audits, branch quality checks, and more rigorous KYC processes, including collaborations with NPCI for Aadhaar-based e-KYC.

7. Financial Projections: While FY '25 resulted in a net loss of Rs. 1,035 crores due to high provisions, management is optimistic about normalized profitability potentially beginning in Q3 FY '26.

These initiatives reflect Spandana's strategic focus on navigating industry challenges while setting the foundation for sustainable future growth.

1. Question: "How do you plan to cover so much ground, especially since most MFIs expect better recovery and growth in the second half?"

   Answer: I believe the projections on productivity matrices reflect our strategy involving customer base expansion and loan disbursements. By maintaining a targeted productivity of 340 customers per loan officer by the end of FY '26, we are confident in our ability to reverse the trends seen in FY '25 and achieve sustainable growth despite anticipated challenges in the first half.

2. Question: "What does early May look like in terms of credit costs and slippages?"

   Answer: We faced slight blips in April and May, trending at about 97% in collection efficiency. While March showed solid performance at approximately 99%, we expect credit costs to normalize as we work on improving borrower discipline and credit quality.

3. Question: "What is the expected size of the equity issue?"

   Answer: We have secured shareholder approval for a capital raise of up to Rs. 750 crores. While we're considering a rights issue, the exact amount will be calibrated later, likely lower than the approved limit.

4. Question: "Are you considering separating sourcing from operations and credit at the branch level?"

   Answer: We will continue with the weekly model in our branches, where about 14% of our business is, while also enhancing credit appraisal processes. Introducing branch quality managers for additional checks will help maintain standards, combining joint liability with better risk management.

5. Question: "Have we received approval from the RBI for using Aadhaar for customer onboarding?"

   Answer: Currently, we follow an e-KYC process utilizing Aadhaar through OTP-based verification. Future enhancements include working with NPCI for smoother Aadhaar-based customer identification, integrating face recognition for verification.

6. Question: "Is the collection efficiency of 97% including Karnataka?"

   Answer: The 97% figure represents overall collection efficiency. Excluding Karnataka, it would be approximately 97.8%. We're witnessing collection trends improve as we progress into the upcoming months.

7. Question: "What factors are driving the credit cost estimates for FY '26?"

   Answer: The credit cost will stabilize in Q3 or Q4 of FY '26 as we work on improving borrower discipline and aim for collections above 99%. Current elevated percentages may reflect residual risks, but we're optimistic about normalization by the second half.

8. Question: "What support can we expect from lenders regarding covenant breaches?"

   Answer: There have been covenant breaches affecting Rs. 438 crores, split between capital markets and term lending. We have the necessary waivers from lenders, who continue to support our growth plans. We don't see these constraints hindering future growth.

9. Question: "When do you expect the profitability to stabilize, particularly in FY '26?"

   Answer: We're focusing on improving collection efficiencies. While it's challenging to provide specific guidance, we expect positive trends in profitability to emerge by Q3 of FY '26 as our strategies yield results.