Release Date: January 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spandana Sphoorty Financial Ltd (BOM:542759, Financial) has successfully reduced geographic concentration risk by expanding its presence in northern states, decreasing the share of top four states in its portfolio from 57% to 50%.
- The company has implemented a weekly repayment model in new branches, contributing 14% to the AUM and 20-25% to new disbursements, which is believed to be more manageable for borrowers.
- Spandana Sphoorty Financial Ltd (BOM:542759) has maintained a strong capital position with a CRAR of 35.7% and plans to raise up to INR750 crores of confidence capital to support future growth.
- The company has seen an improvement in net collection efficiency, with a decrease in flows from the current bucket into arrears from 3.6% in November to 2.2% in December.
- Efforts to engage with branch staff have shown improvement, with a reduction in attrition rates for Loan Officers and Branch Managers, which is expected to positively impact operations.
Negative Points
- The microfinance industry in India is facing challenges such as elevated branch staff attrition and increased delinquencies due to borrowers availing loans from multiple institutions.
- Post-COVID, there has been a decline in borrower discipline, with fewer borrowers attending center meetings, leading to increased collection pressure on branch staff.
- Spandana Sphoorty Financial Ltd (BOM:542759) reported a net loss of INR440 crores for the quarter due to higher provisions, reflecting ongoing financial challenges.
- The company's AUM declined by 14% YoY, and disbursements were curtailed by 43% YoY due to a cautious approach in a fluid market environment.
- The implementation of new industry guardrails is expected to further pressure asset quality and slow down growth in the short term, with potential impacts on AUM growth for FY26.
Q & A Highlights
Q: Will the new guardrails put further pressure on asset quality in the first quarter, and what kind of AUM growth can we expect for FY26?
A: (Shalabh Saxena, CEO) The implementation of guardrails will have a short-term impact, but they are expected to restore discipline in the long term. For FY26, we anticipate a mix of consolidation, discipline, and growth, targeting around 15% AUM growth, aiming for INR10,000 crores by year-end.
Q: Can you provide insights into the X bucket collection efficiency for key states like Bihar, Karnataka, and MP?
A: (Shalabh Saxena, CEO) Bihar is about 30-35 bps lower than the national average. Karnataka is currently 30-40 bps lower due to recent challenges, but it should stabilize soon. MP and Maharashtra are close to the national average.
Q: Given the green shoots in December, is there a chance that the implementation of MFIN guardrail 2.0 could be deferred?
A: (Shalabh Saxena, CEO) There is no indication that the implementation will be deferred beyond April. We have already voluntarily restricted ourselves to three lenders to maintain discipline.
Q: How are you addressing the challenges with customers having multiple lender relationships, especially with the upcoming guardrails?
A: (Shalabh Saxena, CEO) Customers will need to clear arrears to qualify for new loans. We are cautious and have restricted lending to customers with more than three lenders, focusing on maintaining discipline and sustainability.
Q: What are the trends in net collection efficiency, and how do you expect it to improve?
A: (Ashish Damani, CFO) The net collection efficiency is currently at 90.7%. We aim to improve it to 97% by Q2 of next year, with a gradual increase expected over the next few months.
Q: With the significant loss in Q3 and covenant breaches, will you need to raise capital soon?
A: (Shalabh Saxena, CEO) The Board has approved raising up to INR750 crores in equity to strengthen confidence among stakeholders. The timing and mode will be evaluated based on market conditions.
Q: How are you managing the challenges with Spandana + 3 and Spandana + 4 customers?
A: (Ashish Damani, CFO) While these customers have higher delinquencies, not all are non-paying. We are cautious and monitoring their performance closely, ensuring they clear arrears to qualify for new loans.
Q: Are there any improvements in recovery rates in the softer buckets, and how are these borrowers performing compared to peers?
A: (Ashish Damani, CFO) Recovery rates in the softer buckets have been stable, with slight improvements. We continuously analyze borrower performance against peers to ensure effective management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
