Spandana Q1 Results Review - Improving Trajectory In Earnings Sustained: ICICI Securities
RoA expanding to industry-leading 5.9%.
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ICICI Securities Report
Since the new management took charge in March 2022, Spandana Sphoorty Financial Ltd. has embarked on a transformation journey to build a sustainable long-term microfinance lending model.
In all five quarters since then, earnings trajectory kept on improving and in Q1 FY24 its return on asset expanded to 5.9% versus 5.1% in Q4 FY23, 3.7% in Q3 FY23, 2.9% in Q2 FY23 and net loss in Q1 FY23.
Spandana's earnings in Q1 FY24 were driven mainly by strong top-line growth (adjusted for assignment income) and credit cost normalisation.
Total provisions fell to Rs 286 million translating into credit cost moderating to 1.4% versus ~7% in FY23. With management highlighting further yield expansion in Q2/Q3 FY24 and credit cost at 1.6% in FY24, we increase our earnings estimate by 23% each year in FY24E/FY25E.
Maintain 'Buy' with a revised target price of Rs 1,100, valuing at two times September-24 book value per share versus 1.5 times earlier.
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