Spandana Sphoorty Financial Limited has informed the Exchange about Transcript of conference call held on Monday, July 24, 2023
Ref: SSFL/Stock Exchange/2023-24/070
Date: July 31, 2023
To BSE Limited, Department of Corporate Services P. J. Towers, 25th Floor, Dalal Street, Mumbai – 400001 Scrip Code: 542759
Dear Sir,
To National Stock Exchange of India Limited, Listing Department Exchange Plaza, C-1, Block G BandraKurla Complex, Bandra (E) Mumbai – 400051 Symbol: SPANDANA
Subject: Transcript of conference call held on Monday, July 24, 2023
Ref: letter No. SSFL/Stock Exchange/2022-23/058 dated July 14, 2023
In furtherance to our above-mentioned letter, please find enclosed the transcript of the conference call held on Monday, July 24, 2023, to discuss the financial and operational performance of the Company for Q1 FY24.
The aforesaid www.spandanasphoorty.com.
information shall also be made available on
the website of
the Company at
Kindly take the above on record.
Thanking you.
Yours sincerely, For Spandana Sphoorty Financial Limited
Ramesh Periasamy Company Secretary and Chief Compliance Officer
Encl: As Above
Spandana Sphoorty Financial Limited CIN - L65929TG2003PLC040648 Galaxy, Wing B, 16th Floor, Plot No.1, Sy No 83/1, Hyderabad Knowledge City, TSIIC, Raidurg Panmaktha, Hyderabad – 500081, Telangana Ph: +9140-45474750 | contact@spandanasphoorty.com | www.spandanasphoorty.com
“Spandana Sphoorty Financial Limited
Q1 FY '24 Earnings Conference Call”
July 24, 2023
Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the audio recordings uploaded on the stock exchange on 24th July 2023 will prevail.
MANAGEMENT: MR. SHALABH SAXENA–MANAGING
DIRECTOR AND CHIEF EXECUTIVE OFFICER – SPANDANA SPHOORTY FINANCIAL LIMITED
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Spandana Sphoorty Financial Limited July 24, 2023
Moderator:
Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q1
FY '24 Earnings Conference Call. This conference call may contain forward-looking statements
about the company, which are based on the beliefs, opinions and expectation of the company as
on date of this call. These statements are not the guarantees of future performance and involve
risks and uncertainties that are difficult to predict.
As a reminder, all participant lines will be in the listen-only mode and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need assistance
during the conference call, please signal an operator by pressing star, then zero on your touchtone
telephone. Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Shalabh Saxena, CEO and Managing
Director. Thank you, and over to you, sir.
Shalabh Saxena:
Thank you very much. Good evening to all of you. Thank you for taking time out to attend our
earnings call. This is the fifth quarter of the new management in Spandana and I am satisfied to
state that we've come a long way from a year back when in July 2022, we had presented our
Vision 2025. Since then, we've received a lot of valuable feedback, suggestions and advice from
all the stakeholders for which we are very grateful. Please have the suggestions and advice
flowing our way, we need them.
As you are aware, we had identified five priorities for us as a management team when we
presented Vision’25. We have made significant progress on each of the five priorities, and I
would start by providing an update on those. Number one and most important-
People, reinforcing senior and middle management team.: As announced in our last earnings
call, we now have all the 13 key positions filled and all the minus 1 levels are also adequately
staffed. Thus, our senior leadership hiring agenda now stands complete with a strong
management team in place. Our focus now is on setting-up employee centric people practices
with the aim to make Spandana a preferred employer. We have started work on this already. And
in the next two quarters to three quarters, we intend to make progress on this key agenda item.
The second point was strengthen governance risk and control with added focus on refining
processes. A lot of our efforts in the previous year were dedicated in refining and further
strengthening governance, risk and control. We have been calibrating our exposure norms,
tweaking policies where necessary to add strength to our governance framework. Streamlining
processes was also a major focus area during the last five quarters. This is a continuous process,
and we will keep working on it consistently.
Number three, focus on customer acquisition-led business growth, while ensuring retention of
good existing customers. We continue to drive growth through member acquisition. We had
added 8.8 lakh new borrowers during FY '23, which is last year. In the current quarter as well,
we've added 2.6 lakh new borrowers. As we expand the new geographies, our new borrower
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Spandana Sphoorty Financial Limited July 24, 2023
additions will continue to trend higher. By end of the year, we intend acquiring more than 1
million new customers, thus taking our customer base upwards of 3 million or thereabouts.
Point number four, technology scale up to deliver an end-to-end paperless process for customers.
We are continuously scouting for and investing in technology to make our systems robust and
process simple for our employees and customers. Our focus has been an agile LOS and LMS
and most importantly, a safe and secure back end. We believe that technology will drive the next
wave of growth.
Point number five, customer-focused initiatives with emphasis on products and service. We had
envisaged a non-micro finance loan book of over INR2,000 crores by FY '25 and are taking
concrete steps in that direction. We have introduced loan against property in the new geography
of Rajasthan. We will soon be launching the Nano enterprise loans in select markets. We look
forward to scaling up these product offerings in multiple markets in the coming quarters. This is
apart from the INR15,000 crores of book in micro finance, which we have planned end of FY
'25.
Apart from the five priorities, we are well possessed of the fact that there is a large scope for
building efficiencies in our distribution network. We are taking a number of steps to ensure right
utilization of resources. We anticipate a 15% to 20% improvement in efficiencies in the current
distribution metrics that we operate and over the next two quarters to three quarters, we will see
the benefits play out. Our focus on growing in the seven states, which were Rajasthan, UP, Bihar,
Haryana, Tamil Nadu, West Bengal and Gujarat where we have a very low market share
continues to gain ground.
Over the past two quarters, we opened a net 188 branches, most of which are in these focus
states. We want Spandana to have a meaningful share of microfinance portfolio in these states.
A large portion of our loan book and borrower addition growth is expected to come out of these
seven states.
As is there in the presentation, about 26% of new borrowers added during the quarter were from
these seven focus states. While some of our initiatives result in immediate impact during the
quarter, many others will take a quarter or two to translate into tangible results. But I can say
this with reasonable surety that we are on the right track.
Having said that, let me present the results of Q1 FY '24. The results and the investor presentation
have already uploaded on the NSE, BSE websites. I'm sure you would have gone through, but
I'll quickly go through the results.
Disbursements, as you are aware, Q1 is usually a seasonally low quarter for the microfinance
industry. We disbursed INR1,664 crores during the quarter, up 26% Y-o-Y. On AUM, we ended
the quarter at an AUM of INR8,848 crores, an all-time high for Spandana. This was 60% growth
Y-o-Y and a growth of 4% over the previous quarter.
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Spandana Sphoorty Financial Limited July 24, 2023
Customer acquisition. One of the strong pillars of our Vision 2025 is customer acquisition-led
growth strategy. During the quarter, we added close to 2.6 lakh new borrowers, which is 144%
higher than the same quarter previous year.
On the borrowing side, you are aware this is the key component of any NBFC and its
functioning. The quarter saw a total borrowing of INR1,540 crores, up INR894 crores from last
year Q1. Our marginal cost of borrowings was slightly lower at 12.3% as against 12.6% in Q4
FY 23. Weighted average cost of borrowing was largely stable at 12.5%, up by 9 bps
overQ4FY23. We continue to strengthen relationships with our borrowers while continuously
having dialogue with other lender partners.
On the portfolio quality: Our portfolio quality continues to improve over the quarters. The
standard, which is the current book is at 97.1%, an improvement from 96.6% over the previous
quarter and a marked improvement from 68.4% in Q4 of FY '22. The 1-90 bucket is 1.36% now,
which was 1.54% in Q4 of FY '23. Of the 1-90 book 40%, that is 0.55% is in 1-30 bucket.
The GNPA end of Q1 FY '24 now stands at 1.63% and the NNPA is 0.49% on the back of
improved quality and higher provisioning. Of the GNPA pool, about 42% is contributed by pre-
April '21 book, which itself is 1.2% of the loan book now.
On the collection efficiency front, net collection efficiency for the period was 98.1% as against
97.6% in Q4. We continue to see improvements in net collection efficiency, which is a very
healthy sign. Gross collection efficiency for the quarter was 101.5%. Our focus at the distribution
level is net, because that is the timely repayment and that is what we are driving as a team.
Financials for Q4. We continue to maintain a provision coverage of 70.1% on the consolidated
book in the current quarter, and NNPA has reduced to 0.49% and GNPA improved to 1.63%.
The number for the previous quarter were 2.07% and 0.64%. Our yield on the portfolio has
improved to 24% from normalized yield of 22.8% in quarter 4 and 16.4% in Q1 of FY '23.
NIM is 14.2%. That is up 38 basis points over normalized NIM of last quarter and 434 bps over
quarter 1 of FY ‘23. Total income for the quarter increased 104% to INR527 crores versus
INR259 crores in Q1 of FY ‘23. Net interest income was up 102% to INR328 crores for the
quarter was INR162 crores in quarter 1 FY ‘23.
PPOP for the quarter was INR189 crores, up to 273% over INR51 crores reported for the same
quarter previous year. PBT for the quarter was INR161 crores, PAT INR119 crores, which is an
increase of 13% sequentially over the past quarter. We had reported a loss of INR220 crores
during the same quarter of previous year, owing to a write-off of the INR702 crores that we have
done in Q1, as all of you are aware.
So to summarize, we have the building blocks in place and now are completely focused on
execution and delivery of our Vision 2025 targets. This year is all about efficiencies, productivity
and refining processes. Our plans for having 1,500 operational branches by end of FY '25 is on
track.
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Spandana Sphoorty Financial Limited July 24, 2023
And over the past six months, we've opened, as I said earlier, 188 branches. We continue to build
the distribution where we feel there are opportunities obviously, quality of the specific
geography drives our decision making. We continue to experience strong economic tailwinds in
our markets, driving demand for micro loans. We continue to be cautiously optimistic about the
growth potential of the microfinance industry in India.
I thank all the stakeholders of Spandana, the Board, our lenders and our colleagues in Spandana,
who pulled in their energies during the year. A special note of thanks to all the branch staff, our
loan offices, branch managers and the entire field staff who work hard day in and day out to
deliver the results that collectively all of us have envisaged.
Thank you very much to all of you on the call. You have been a constant source of
encouragement by giving us positive advice feedback and, of course, support during the year.
We look forward to receiving similar encouragement in the future.
We have the entire management team with us and are ready to take questions from you. Thank
you very much.
Moderator:
Thank you very much. We will now begin the question-and-answer session. We take the first
question from the line of Shreepal Doshi from Equirus. Please go ahead.
Shreepal Doshi:
Sir, congrats on a good set of numbers. I had the first question on the collection efficiency. So
we see that collection efficiency for MFI lenders are ranging between 98% to 99%. So is it fair
to assume that this is the new normal for the sector post COVID now? And therefore, the credit
cost would also broadly be increasing to say 1% to 2%?
Shalabh Saxena:
See, for the -- so there are two questions that you asked in that one question. The first is net
collection efficiency is a timely repayment and sometimes the payment comes with a lag. The
payment comes with a lag for various reasons. It is sometimes a company-driven thing also, the
employee might be on leave, etc. So there are various layers in this whole thing. The credit cost
if you have to look at, you have to look at it in the context of whether you're receiving the
payment or not and that is where you should look at gross collection efficiency.
On the timely repayment, which is the fundamental discipline of micro finance, the net collection
efficiency is what we are driving amongst our teams. To answer your question, Shreepal, 99%
is what we are targeting in the short term. Is it a new norm, maybe at this point in time, -- while
we built in all our financial credit cost of 2%, we anticipate the number to be lower, a 1%-1.25%.
Any company and not just us.any good company if it runs its model well; it should not deliver a
credit loss of1.5% or maybe 1.6%, that's it. So that's our take on this whole thing. We obviously
have done some conservative estimates on the credit loss valuations, and that's where we are.
Shreepal Doshi:
Got it, sir. Thank you. The second question was you highlighted about tech initiatives. So what
is the capex or expense that we are likely to incurred over the next one year for these initiatives?
And then on the opex, even during quarter, the employee cost was significantly higher on a
sequential basis. So what explains that?
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Shalabh Saxena:
Employee cost.
Ashish Damani:
Hi Shreepal, this is Ashish, this side. The employee costs are higher because we had gone
Spandana Sphoorty Financial Limited July 24, 2023
through our annual increment cycle, and there is also a headcount increase, which has happened
between last quarter, around March and then again in this quarter as well for the branches that
we have rolled out. So those are the two parameters which have kind of added to the cost. But
as we go along, the employee cost change on a sequential quarter basis should normalize because
this was more of an annual increment exercise, Thus, you are seeing a jump between previous
quarter and this quarter.
Shalabh Saxena:
On the second question, which is this year, our IT cost is about INR75 crores of split into a capex
of about INR20 crores and the balance is opex. We have budgeted this adequately until FY '25,
and we will do another three years excise next year when we'll kind of bake the future years as
well into this.
Shreepal Doshi:
Got it, sir. Sir, just last question. With respect to the income revaluation that we have to do as
per the RBI norms. So if there is any household which has got household income of more than
INR3 lakh. Firstly, what is the process that we have deployed for evaluating the household
income, and secondly if there is any household income who is making more than INR3 lakh then
do we have a product for that customer?
Shalabh Saxena:
At this point in time, Shreepal, and in our various commentaries, we've been stressing the fact
that we are very basic bread-and-butter people. We don't want to deviate and hence, the right
answer to this question is that we will put them under the non-PSL, non-qualifying assets and
book them. But as of now, we are not approaching them. I mean, if it doesn't fall then the lady
is out. We don't source that case because as I said, last year and this year, we are just sticking to
the fundamentals of business. And given the fact that we are doing the JLG model of micro
finance, that is what we are foreseeing.
Moderator:
Thank you. We take the next question from the line of Manuj Oberoi from YES Securities.
Please go ahead.
Rajiv Mehta:
Yes. Hi, sir, this is Rajiv. Congratulations on very strong set of numbers. My first question is on
growth. So sir, were there any specific operational changes still implemented in this first quarter
because when I look at disbursement, there seem to be lower even adjusted for seasonality. So
that is one.
And another related question is, is there any change in duration of the portfolio over the last two
quarters because I see portfolio run off in this quarter being slightly slower than usual?
Shalabh Saxena:
So the second part of your question I understood. Can you just repeat the first part? Sorry, I
didn't understand.
Rajiv Mehta:
Yes. So were there any specific operational changes on the ground, which also led to a lower
disbursement in this quarter, besides your own seasonality?
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Spandana Sphoorty Financial Limited July 24, 2023
Shalabh Saxena:
So Manoj. we have a defined goal in mind. Rajiv.
Rajiv Mehta:
Yes, Rajiv, this side, yes.
Shalabh Saxena:
So Rajiv, we have a defined goal in mind on FY '24 and FY '25. As you've seen in the
presentation, we are already at INR8,848 crores. We are very close to about the INR9,000 mark
just about INR150 crores. We are in no hurry to report. Microfinance is all about pacing your
innings. Microfinance is not a T20.
Microfinance is a test match. And the test match has to last a full five days, don't have to end the
test in three days or four days. We know exactly what we are doing just because there is an
opportunity, where you cannot or should not change or alter your plan. We are cognizant that --
and I will repeat this Microfinance is a risk management business. It is not an asset business.
It is important that the teams on the ground are culturally aligned to the sense of responsibility
that you do not as an institution deviate on the quality that you're sourcing. Hence, I heard your
question or rather your observation, my view is that we know exactly where we have to end and
we've given the last call also, there was a point on this. We are in no hurry to end the match in
three days.
Our goal defined this year and next year, which is INR15,000 crores in FY '25 is fixed. It could
be a few INR100 crores here and there. In all likelihood, it will be over. But very difficult to
kind of stick our neck out and say instead of 15, we'll do 17. There is no need. So past is enough
history that if you are not cautious, you end up burning your fingers, hands and everything. So
that is very clear. We'll pace our innings to ensure that the quality is delivered and that is what
we are doing.
So we had said in the last call that we as an institution has to very, very clearly deliver quality
apart from the top line as well. And if you would have followed our numbers over the past four
quarters that we've been coming here. That's a testimony of the fact. So cautious lending is the
right approach in my view. Quarter 1 either way, this is what was the plan and we are just about
there.
Rajiv Mehta:
Okay. Got that. And now the question is on NIM outlook because -- so what is the space for the
portfolio yield are moving up because it has moved pretty significantly in the last two quarters.
And secondly, the other variable for NIM will be the cost of funds and I see marginal cost of
funds coming down and we also raising sizeable coming up money at lower cost. So basis the
expected movement in cost of funds over the next few quarters and maybe more residual re-
pricing of portfolio, where do you think NIMs can go to?
Ashish Damani:
Hi Rajiv. Good evening. Yes, there is a quarter or two more for our NIM's to see at least around
the same number or small expansion as well, primarily on account of yield probably inching-up
a little bit more given that we've been lending at 25%, there is a little headroom there. We are
presently at 24% yield and you would never hit the 25%, but there is still a little bit of headroom
there. So a quarter or two, you may continue to see some inching up.
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Spandana Sphoorty Financial Limited July 24, 2023
On the cost of fund side, I think we've seen a drop last quarter. We hope to see a little more drop
given that as an institution, we have been having a consistent performance for the last five
quarters now. I think there is a scope of improvement in terms of how or what kind of pricing
that we are borrowing at. So yes, we are positively inclined to maintain the NIMs at the current
levels.
Rajiv Mehta:
Sure. Ashish, can I just ask one more question before I move back?
Ashish Damani:
Sure. Go ahead.
Rajiv Mehta:
It is on the provisioning line. So there's a INR26 crores provision made against receivables from
assignment portfolio. It can’t be against that direct assignment portfolio, right? So what is it
pertaining to?
Ashish Damani:
So this is a direct assignment only. So there were certain customers where the collections did
not go through. And during the period (IT disruption), earlier period, when we did not have the
IT or whatever information we kind of have paid in advance to the banks. We are still trying to
collect it from the customers. As a prudence, we have kind of provided against that portfolio just
to have a clean set of books.
Rajiv Mehta:
Yes. So any more hit likely, yes, or we are done with this?
Ashish Damani:
We still have about INR24 crores of portfolio, which is there on balance sheet, which we will
have to see and calibrate as we go along.
Moderator:
Thank you. The next question is from the line of Sagar Tanna from Alchemy Ventures. Please
go ahead.
Sagar Tanna:
Hi, sir. If I heard you correctly, you expect credit cost to be 1.5%-1.6% for the year, is that
correct?
Shalabh Saxena:
Yes.
Sagar Tanna:
But what is the outlook because we still keep getting mix commentaries with respect to rural
recovery, etc, what is your outlook in terms of how the economy is shaping up on that side of
the country?
Shalabh Saxena:
So look, the credit demand is very strong, and we have seen a lot of turnaround from a quality
point of view. So that is the heartening fact in this whole micro finance story. So micro finance
over a period of time has seen lots of ups and downs. And post-COVID, a year now a year, 1.5
years, that it has seen strong tailwinds, both from the economy point of view and the heavy
investment that the government is doing infrastructurally in the Bharat of India.
So from a quality point of view, I think if you run the operations well, the number that I said
should hold that unless there are some unforeseen, unknown issues, which might not kind of
favour the industry. As far as the industry is concerned, concentration risk is very, very
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Spandana Sphoorty Financial Limited July 24, 2023
important. And as an enterprise, we are ensuring that we walk the steps to ensure the
concentrations are moderated across the states where you see the elevated levels on the market
share and the contribution that a specific state does give to us.
So that is what we are working at, and until FY '25, right now, we have a couple of states that
14%- 15% contribution. We have a clear plan to get them down to 11%-12%. So in our estimate,
combination of concentration, plus good execution of the model. Relying on JLG to ensure that
there's a safety net are the critical components of this model. And I can say this is a reasonable
surety that if all of these are done well, there’s a good chance that as an enterprise, we will stand
to gain on this.
Moderator:
Thank you. The next question is from the line of Jignesh Shial from InCred Capital. Please go
ahead.
Jignesh Shial:
I have two questions. One, has there been any write-off during the quarter? And any recoveries
from the previous written-off quarter, any number on that you have it?
Ashish Damani:
Yes. So write-off for the quarter is driven by the policy that we have taken up last quarter, which
is any loans, which move into 455-plus days, will be moved to technical write-offs. The number
was INR21 crores. The impact of this was around INR5.8 crores in the P&L. In terms of
recovery, the total recovery that we had was INR23 crores across the write-off.
Shalabh Saxena:
So of the INR700 crores and other write-offs that we have done, we've collected all put together
about INR90 crores is the specific question that you asked from the time we started this journey.
Jignesh Shial:
Understood. That's very helpful. And secondly, you've been doing pretty good on the MFI side.
And as you rightly pointed out earlier that more-and-more focus would be on incremental
branches and states I asked the same question last time as well. But if you can brief out a little
bit more in detail about other than MFI businesses, how we are shaping up and how we are
seeing that things are opening over next two years? But at least how are the beginning has been
there, if you can give some idea on it that could be really helpful other than your MFI business.
Shalabh Saxena:
So Jignesh, we will -- it's early for us to -- I mean, we started booking loans on the LAP side.
We will launch the Nano enterprise, which is the small ticket loans to retailers. A 60,000 ticket
size is the number that we will start with it is a non-JLG business. That should start in this
quarter. These two businesses this year is testing the waters and seeing how it goes. These are
pretty fast moving. There is an opportunity, a lot of opportunity, and we'll continue to focus on
the lower ticket sizes.
I mean, we are not intending to give loans of INR20 lakhs, INR25 lakhs on the LAP, for example.
Sweet spot is INR5 lakh to INR7 lakhs. And on the Nano enterprise, I said our loans will be at
INR60,000 to INR1 lakh. So there is tremendous demand for these loans because this is the
missing segment. The banks don't go after them and their business mostly survive on borrowings
from friends and relatives.
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Spandana Sphoorty Financial Limited July 24, 2023
Once again being unsecured in nature, at least the Nano enterprise, we have to be cautious and
that is what we will. On the LAP side, it obviously is a secured business. And that we are
focusing on productivity. There's a slightly longish gestation period business. Its not a MFI
business, which turns around very fast. But it holds tremendous promise for the profile of
customers and the segments that we have identified. And maybe next quarter, when we come,
we will have more colour on this because we'll have some volumes backing whatever we speak
right now it is insignificant volume to kind of give any commentary on.
Jignesh Shial:
Understood. But just one thing that this will be all focused on the new customer base altogether,
right? Not to the existing ones
Shalabh Saxena:
Yes. So absolutely. And what we have done is that we have opened a separate set of branches
we are not cutting corners by putting them into MFI branches because ultimately, it is the same
institution. But we are very clear. We are not making the model fungible, we are not cutting
corners. The places where to open a branch is a factor of the geography and the potential and
has nothing to do with whether Spandana is around or not.
I mean the Spandana MFI is around or not. It is a completely new set from a Chief Business
Officer down to the Loan Officer. It is a complete separate team it works differently. It works
and the hirings have been done from the industry so that they have a fair colour of how this
played out. It's a new business for us, but it holds a lot of promise. The new business that we
have launched in the state of Rajasthan, I don’t know, you are aware or not, but when we took
over this book, this is not a new business for Spandana because this was being done in Andhra
and Telangana. We had a book of about INR117 crores when I had taken over.
And now it is around INR51 crores, INR52 crores. So it has run down because we were looking
for a good LMS and LOS. We wanted to do business properly and just because the opportunity
was goodwe really did not hurry into launching this business. we were servicing our existing
book. We stopped all disbursements for a year. That is why the book run down from INR117
crores to INR51 crores.
Now we have started in a different state, which is Rajasthan, which is supposedly a fertile
geography for this kind of a setup because the customers are evolved there. And we see a lot of
available demand and untapped demand in this market in this segment, and that is what we will
continue to progress on.
Jignesh Shial:
Understood. And is it fair to assume that the yield on this new segment would be lower than
your typical MFI portfolio, but the tenure would be longer one. So the EMI will become more
stickier?
Shalabh Saxena:
That's correct. Yes, that's correct. Absolutely.
Moderator:
Thank you. The next question is from the line of Renish from ICICI Securities. Please go ahead.
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Spandana Sphoorty Financial Limited July 24, 2023
Renish:
Yes. Hi, Shalabh and Ashish, congrats for good set of numbers. Sir, just two questions from my
side. One, you've been on the qualitative side since we have started this journey of weekly
collection model so of the total MFI branches which are on the weekly collection, is there any
split, let's say, how much of this would be earlier into monthly model?
Shalabh Saxena:
No. So the new branches, Renish, that we are opening irrespective of the states will be weekly.
That is number one. Number two, for a customer who you contracted at a monthly, it would be
unfair for us to work weekly path because it might not happen. So we have clearly laid out plan
in terms of how do you convert or rather phase. How do you phase out the current monthly
model across the branches because we have three sets of branches. Branches, which are low on
AUM, medium AUM and very big branches.
The very big branches are at some 285 or 286 numbers, our of the 1,100, 1,200. Those branches,
we will not touch this year. There's other things that we are doing, but they will remain monthly.
The other branches, we have a phase-wise plan on how do you kind of recalibrate them to convert
them into a weekly. Because by definition, about 60%, 70% in a steady state business will go to
our existing customer.
And if you keep on booking a monthly loan, this will never really work. So you’ll never be able
to depart from the monthly. So we are believers in the weekly model, just as we are strong
believers in the JLG. So there are clearly articulated plan internally that we have on how are we
going to move the existing set of monthly branches into weekly.
Renish Bhuva:
Okay. And like, say, while implementing this, have you witnessed any, let's say, pushback from
the client or the staff where we might see some pushback in implementing weekly model?
Shalabh Saxena:
Weekly model. So what are we attempting to do, Renish. We are attempting to do all the three
things, which is a customer acquisition, a collection and a disbursement. All the three things,
every single day of the 20 working days that you have, 20, 21. The new set of branches that we
have opened is a fresh staff, and that is a easier one. I mean, most of our team members do realize
and any event such as a COVID or maybe a demonetization which happened many years back.
In case whenever there are challenges in the environment, weekly customers isn the weekly
model comes out of a crisis much quicker than the others because the liability at least at the EMI
level is very nominal of INR600, INR650 instead of the INR2,400, INR2,500.
Now the point is that -- so the answer to your question is, we've got very good support from our
people. The plan was made, taking them very much on board in terms of how they are doing.
Plus what happens is that when it comes to a Monday to Friday, Monday to Friday rigour--
Renish. What happens is the staff gets a Saturday, Sunday, which is much more relaxed rather
than the earlier regimented approach of a Saturday, Sunday because we had a different collection
model of 1, to 10. So the long answer to your question, we have got very good support because
we took them into confidence before walking this path. And now obviously, we are progressing
on that.
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Spandana Sphoorty Financial Limited July 24, 2023
Renish Bhuva:
Got it. And sir, secondly, on the, let's say, growth side. So we have seen most of the companies
reporting better numbers in Q1 despite being seasonally weak quarter. And if I recall our
guidance for ‘24, ‘25, we had laid down a year back. I think since then the industry or is the
business cycle has changed dramatically. So would you like to give, let's say, a revised guidance
or any commentary on the guidance, which you have put down on your back?
Shalabh Saxena:
So if you look at our numbers, we ended the last year at INR8,511 crores. We are at INR8,848
crores now. If all goes as per plan, we will hit the INR10,000 crores number in either the last
month of this quarter or the first month of the next quarter. So we should end the year at about
to INR11,750 crores to INR12,000 crores, roughly, that is the number that we are looking at,
which works out to in my mind, more decent Y-o-Y growth for FY.
This growth is coming from the new areas. So that is very, very critical. We are opening those
new geographies, new branches, which will kind of deliver the numbers that we are talking to.
Earlier also, we've stated this position that we are not great fans of big ticket sizes. We'll continue
to deliver loans in small packets. -- and that is, what we are planning to do. That is why the
numbers on the customer acquisition side you would have seen.
Maybe two quarters from now, we will evaluate the movement on the ticket sizes. I understand
there's inflationary 6% increase, that I ideally one should be doing on a ticket size to stay at par.
But, at this point in time, we are not facing any resistance either from the customer or our
employees. And we are happy that way. We are clear that, more number of customers is the way
to go, and not really…
Ashish Damani:
In fact, Renish I'll just add a point about what Shalabh was trying to allude to. If you look at our
ticket sizes, this quarter, the weekly is coming into play now, given that, we have weekly
business at 35,000 in the first ticket size instead of 42000, which we do in a monthly setup. And
that has impacted our average ticket sizes. It is marginally lower compared to last quarter. It is
around 41,000 compared to 42,000 plus last quarter.
Shalabh Saxena:
So Renish, if you see within our company, we are following two ticket sizes. But then in our
ticket -- in a cycle one, monthly, our ticket size is 40,000 in a weekly model, whichever the 188
branches that we have opened, the ticket size is 35,000, and that's the start point. So we are
convinced that, you don't loose a customer for INR3,000, INR5,000. There are other things,
which come into play, which is, what is your conduct with the customer? What is your approach?
Are you there, when the customer needs a loan? How you're dealing, is it transparent?
So the larger point is that you have to be convinced of the position, you are taking and you
should not be out-priced. So that is also very critical. Suddenly, you can't be an outlier in the
market, when the world is giving at USD100, you can't be ending the USD50. So that we are
cognizant of that. So there we keep on balancing and recalibrating and calibrating. But as of
now, we've chosen this path and we will keep on evaluating our position as we move ahead.
Renish Bhuva:
Okay. Got it, sir. Thank you so much, sir, and all the best.
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Spandana Sphoorty Financial Limited July 24, 2023
Moderator:
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please
go ahead.
Sarvesh Gupta:
Good evening, sir and congratulations on a good set of numbers. And sir, one question on the
cost to income side. So where do you see it settling down? We had a little bit spike in this quarter.
But as you explained, it was because of employee cost maybe increments, but where do we want
to settle it?
Shalabh Saxena:
The sweet spot is more than north of 35% south of 40%. So once the things are stabilized, a
37%, 38% is a good number to kind of operate in. Anything less would not be fair on the
employee and anything more is not fair on the balance sheet. So that is what, is our view. So
37%, 38%, any number, which is between 35%, 36% to south of 40%. I mean any number
starting with 35% or until 39%, is a good number as for us.
Sarvesh Gupta:
Understood. And on the ticket size question, so your number of borrowers as in Slide number 5,
has not increased much, maybe 12%, 13% up only Y-o-Y, while the AUM is up 60%. So overall
ticket size per client would have increased quite a lot, right? Y-o-Y, if we just do the average?
Ashish Damani:
Yes, hi Sarvesh. Yes, what basically we have done is, we have kind of written off a lot of
portfolio last year. And that has impacted a cleanup on the number of borrower side, since the
customers had the small trail portfolio also coming from the COVID period and all. The amount
outstanding adjustment probably was lower, but the number of customers is, anyway the
denominator kind of shrunk really big time. That's the impact that you see. But if you look at the
number of customers, like Shalabh was explaining last year, 8.8 lakhs customers. This quarter,
2.6 lakhs customers is what we have added.
So the number of borrowers will continue to increase from here on and the exposure piece will
be settled. Even if you look at with the current base, the average outstanding probably is around
INR37,000, which is very much in line with the industry, in fact marginally lower compared to
the industry. So, we are very well placed there. The ticket size like we talked about, is a factor
of what kinds of loans you do.
We have a very standard income-generating loans only, which as company, we are doing. In
fact, most of our loans are two years. So the ticket size will be slightly higher compared to
people, who do, let's say, one-year loans or people who are doing, let's say, cross-sell loans,
which are six months and all with much smaller ticket sizes.
So it's a factor of what is there in the denominator and numerator. For us, it's a plain vanilla
income-generating loans. And that's why probably ticket size stick to be a slightly higher
compared in fact, I would not say higher any more, it is in line with the industry. But if you look
at the exposure, we will be marginally lower.
Sarvesh Gupta:
Understood. And last quarter commentary was that our business as usual, ROA should be around
4.5%. Now this quarter, we have already reached 6%. And there's scope for cost-to-income to
go down, NIM’s to improve, cost of funds to go down. You are also saying that your credit cost,
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Spandana Sphoorty Financial Limited July 24, 2023
which was earlier from maybe 2% BAU now is in trending down to 1%, 1.5%. So is there a
major upside on your ROAs from the current 6% as well?
Shalabh Saxena:
So see, this is a business, where we don't know, what we don't know. So you still have to be
agile, and it is always good to plan conservatively and not go overboard. This was the first
question also, where I kind of gave a longish answer. We are and while you have not asked, but
our comfort is 13.9%, 14% NIMs, cost-to-income of what I said, 35% to 39%. It's very important
that, our yields have gone up to 24%. They will stabilize at this number now because we had
increased our rates. I think, next quarter might be a slight delta up and then, it will stabilize
because we haven't had a rate hike since the September or October of last year.
So stability is what we are looking for at this point in time, Sarvesh. And what we'll still calibrate.
But yes, the numbers are what they are. But on a steady state, what we were confident of is what
we told you, the 4.5% that we spoke about. And if it is more than it is good, but that much we'll
deliver for sure.
Sarvesh Gupta:
Understood. And a final question on the employee hiring. So of course, you are adding the non-
MFI portfolio as well as expanding rapidly in the last one quarter, two quarters. So what's been
the experience there because all the companies are doing quite well. So isn't it like very difficult
to get talent at all levels to be done properly, you have just started expanding in the last one
quarter or two quarters. And now the entire industry is firing up and everybody would have
potentially a propensity to pay higher or retain, so in that scenario, how do we sort of operate
with our plans, which will mean a lot more branches and lot more employees and even in the
new product side?
Shalabh Saxena:
So one of the key things is people, and we have to ensure that, we have people, who stay with
us and are able to deliver quality. When it comes to employees at a branch level, which is a
branch manager and a loan officer. Loan officer, we will always have that standard churn. We
will have the churn, which is the standard 30%, 35%, 40%. Microfinance is all about robotic
execution of the plan. How you are able to execute the processes and how we are able to ensure
that, they see a future in you as an organization.
For whatever Spandana is, very happy to report that, over the past one year, we have got very
good talent. We've been able to attract very good talent, and this includes people at the branch
level. And when I say branch level, the branch manager is a critical cog to this whole wheel.. A
loan officer churn will happen. That is inevitable, but you have to control the branch managers
churn and or attrition that you have to, as an organization, ensure that your entire might is behind
it.
We have taken various initiatives to ensure that, while there's a future in it, in this for everyone.
But if you are able to control the attrition at a branch manager level, you are sorted as an
institution because the branch manager is the CEO of that entire geography of 30 kilometres,
35-kilometres radius that he operates in, and he will ensure that, other things are set into place.
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Spandana Sphoorty Financial Limited July 24, 2023
From a pure philosophy perspective, I am not saying, we are there yet. But at a LO level, we
should hire freshers. These new geographies, where we are going, we are having -- we will kind
of walk that part because we can't have completely new set of people, the entire network or the
entire hierarchy can’t be new.
So we are doing some bit of lateral hiring. But however, when it comes to approach point of
view, and we will get there sooner than later. The LO will have to be from the market without a
micro finance background. Your branch managers duty is to train the employee and ensure that,
he executes for you. This country is a 1.3 billion, 1.4 billion population. You'll have enough and
more people to kind of come to you, provided they see good enough money.
A INR20,000 is the employee mix, good enough for their place, where they live. And our duty
is to ensure, we create the environment so that, the career part is taken care of. We can have a
separate discussion on this, and that's why I said, we are not there yet because we are trying to
open new branches at a faster pace. But in a steady state, that is where we'll get to.
Sarvesh Gupta:
Understood. And did I hear you right, when you said that, FY '24 target might be around
INR10,750 crores, which is like a 25% AUM growth for this year?
Shalabh Saxena:
Q3.
Sarvesh Gupta:
Q3. Okay, understood. Thanks, Shalabh, and all the best for the coming quarters.
Moderator:
Thank you. The next question is from the line of Rohan from Agile Capital. Please go ahead.
Rohan:
Yes, thank you for the opportunity. Congratulations on the good set of a numbers. I have two
questions. What is the stabilized ROA? Are we looking at the most probably financial year '25?
So you have guided for AUM for finance year '24 and financial year '25. I mean, what is your
internal estimate if you could?
Ashish Damani:
Hi Rohan, So ROA I think, Shalabh just explained on the call, a little while back, we are
committed to giving more than 4.5% ROA in stabilized or a BAU basis. Currently, the number
anyway is trending higher than what we have committed for. I think, the way business is shaping
up. We are very well placed to meet the guidance of 4.5% and the AUM of INR15,000 crores
by FY'25. We don't see any hedge around any of these numbers, which we have committed.
Shalabh Saxena:
Let me just supplement because I've been hearing this commentary. This is, we are not selling
consumer durables or commodities. This is finance, where you have to get the money back. It is
very critical that, you deliver quality. And hence, over a period, you will have those ups and
downs for sure. But as long as you are in the guidance of the sub 2%, during this conversation
itself.
I have quoted a number of 1.5%, 1.6% twice over. As long as you are in that range, you will see
this numbers going up, down marginally. But you have to operate in that range to deliver the
number that we are talking of. As long as you are there, you should not be worried about it.
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Spandana Sphoorty Financial Limited July 24, 2023
While right now, the graph to the GNPAs and the SMAs, all of that is sliding down. You could
see in the future, some bit of some bps going up, it could further go down from here as well. All
I'm trying to mention is that you will have those seasonal plays. You will those few issues here
and there. But what is very critical is the larger point that you have to operate in that range,
which is deliver quantity along with quality. As long as the framework, if you are able to deliver
in that framework, which you came out with under the Vision '25, we should be fine. And that
is what, we are focused on.
Rohan:
Okay. The second question was, if you could just kind of highlight, which of the states are now
dominating your disbursement for the quarter and also the portion of your overall loan book?
Shalabh Saxena:
I think in the -- because this was a suggestion in the last call, somebody had I'm forgetting the
name, Slide number 19 in the annexure, we have given the state wise split. So we have the --
and it's a good question. I will extend with your permission, the question and I'll give you the
answer also. There are two states, 16% is Madhya Pradesh, 15% is Orissa.
And then there are 11% and 10%. By end of FY '25, if all goes well, all the big ones should be
anywhere in the range of 10% to 11%, at best 12%. That is our comfort zone. So comfort zone
is 12% max contribution from a state. The plan is such, and that is why the focus on the seven
states because we don't have great market share. And those are good potential places.
So this year, in those seven states, we will end of the total AUM, we will have about 23% coming
from these seven states. End of next year, which is FY '25, that will go about 44%-45%. So that
is the overall larger picture. And this solves the concentration problem also, which is the end
objective, or which is the objective that we are running at and we will work our way to ensure
that is the number that we will be end of FY '25. We have already started seeing the results over
the past quarter, three quarters, in fact and this trend will continue.
Rohan:
Yes. Thank you.
Moderator:
Thank you. We take the next question from the line of Sagar Rungta from Anand Rathi. Please
go ahead.
Sagar Rungta:
Good evening, Mr. Shalabh and Ashish. Just one question from my side. If you could give a
broad colour on the FOIR levels of your new customer acquisition from the focus states and a
cap at which Spandana as an organization looks at?
Shalabh Saxena:
FOIR levels. Did I hear you right?
Sagar Rungta:
Yes.
Shalabh Saxena:
So look, we work within the norms and whatever is allowable is what we will do because that
you can't really fight the -- there's no point. There is a clearly defined sensible and the right
approach, which has been prescribed, and we will follow that. That's number one. What is in our
control are the levels of lending. And hence, we track the indebtedness level at a borrower and
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Spandana Sphoorty Financial Limited July 24, 2023
not the ticket size because in our view, booking a ticket size does not give the full picture. The
indebtedness level at a customer has to be looked at, and that is what we track.
And over a period of time, over the ticket sizes also as more and more we keep on and I think in
the beginning of the commentary, I have said that the seven states that we have started our
business, we operate on a lower ticket size. In fact, 80,000 on a cycle four customer is the max
that we give in Spandana, which will probably be one of the -- it is a lower number than the
industry.
The industry has already hit 1,00,000, 1,25,000 all kinds of numbers are floating around. We are
not ticket size players. We are not a higher ticket size player. You might lose out the customer.
So be it. Our experience is that a good relationship and a transparent conduct drives the
relationship, not a ticket size for that matter. And that is what, we'll keep on pursuing.
So the larger question is, what is the compromise you are doing, when you operate in this
segment? We focus on the JLG. In fact, as I said the last time, we've been making this point. All
the new branches that we are opening anywhere now, are weekly models. So that is our belief
in the system and the JLG is something that we strongly believe in. So we will continue to pursue
this. Ticket size is something that, never gets us excited. And for whatever reason, we kind of
tend to shy away from that.
Sagar Rungta:
Yes, sir, my question was more in terms of a broad idea on the FOIR levels of the customers?
Shalabh Saxena:
So we can, I don't have the data handy, but it's a very black-and-white. If you're in stock, what
are you allowed? You are allowed INR1,50,000 at a household level of the installment. That's
the max. This is a practice that I have heard that people have started increasing the tenure of the
loans to kind of fit into this. Once again, not a great fan of this idea.
This is an unsecured lending, unsecured lending 24 months is the max that one should look at.
And at this point in time, we will hold on to this these. The FOIR level, so if they qualify, we
get you the numbers if you want. What you want to know is, how much is the headway within
that customer's household. correct? That's the question in a different way, right?
Sagar Rungta:
Yes, sir.
Shalabh Saxena:
Yes. So we don't have the numbers right now. We'll find it out.
Sagar Rungta:
No worry, sir. I'll take off-line, sir. Thank you, sir.
Moderator:
Thank you. Ladies and gentlemen, due to time constraint, we take the last question. This was
the last question. I would now like to hand the conference back to the management for their
closing remarks. Over to you all.
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Shalabh Saxena:
Yes. So thank you for attending this call. I thank every single person, who has at different points
in time have engaged with us, and they have given their advice to us in terms of various elements,
something related to business, something which is outside of business and so on and so forth.
Spandana Sphoorty Financial Limited July 24, 2023
Please continue supporting us. And we, from our side, have a very clearly, defined way forward
until FY '25. And vision 2025 is what is driving us and we'll continue to tread our path. Quantity
with quality is what we will focus on, and that is what we are working on. So thank you very
much. Thank you.
Moderator:
Thank you. On behalf of Spandana Sphoorty Financial Limited That concludes this conference.
Thank you for joining us. You may now disconnect your lines.
****
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