SPANDANANSEQ3 FY25January 29, 2025

Spandana Sphoorty Financial Limited

13,086words
112turns
11analyst exchanges
2executives
Management on call
Shalabh Saxena
MANAGING
Ashish Damani
PRESIDENT AND CHIEF
Key numbers — 40 extracted
rs,
lt operating environment, owing to a multitude of factors. However, before we dwell on those factors, let me take a step back and give you a context of what was the strategy we at Spandana adopted and
57%
ence. As a consequence of this expansion, the share of top 4 states in our portfolio reduced from 57% then to about 50% by end of December '24. So hence, we tried as per the articulated strategy, w
50%
ence of this expansion, the share of top 4 states in our portfolio reduced from 57% then to about 50% by end of December '24. So hence, we tried as per the articulated strategy, we tried reducing t
14%
eekly. And by the end of December '24, these branches contributed about 14% to the AUM. And on a regular basis, about 20% to 25% on new disbursements. Parallelly, we also la
20%
d of December '24, these branches contributed about 14% to the AUM. And on a regular basis, about 20% to 25% on new disbursements. Parallelly, we also launched Project Parivartan which was to move th
25%
cember '24, these branches contributed about 14% to the AUM. And on a regular basis, about 20% to 25% on new disbursements. Parallelly, we also launched Project Parivartan which was to move the exist
INR80,000
nerstone of our growth strategy over the past 2 years. The maximum ticket size that we offer is INR80,000 and the maximum tenure that we offer is 24 months. We don't offer any loan beyond 24 months, and w
9 lakh
believe that in the microfinance environment, this is the right thing to do. While we added about 9 lakh new customers in FY '23 and about 14 lakh customers in FY '24, respectively, in the current finan
14 lakh
ent, this is the right thing to do. While we added about 9 lakh new customers in FY '23 and about 14 lakh customers in FY '24, respectively, in the current financial year, and we've kept you updated as w
3.3 lakh
e slowed down our customer acquisition owing to the industry challenges and have added only about 3.3 lakh borrowers so far this year. This is a part of design. This is a part of the articulated strategy
2.2%
rear, the net collection efficiency has shown a trend reversal in December. In December, we saw 2.2% of flows from the X bucket, which is the current bucket into arrears, which has improved from 3.6
3.6%
.2% of flows from the X bucket, which is the current bucket into arrears, which has improved from 3.6% in November. So 3.6% flow has gone down to 2.2%. Any improvement in current book indicates a smal
Guidance — 20 items
Shalabh Saxena
opening
“Parallelly, we also launched Project Parivartan which was to move the existing borrowers who were in the monthly branches from monthly repayment schedule to a weekly repayment schedule.”
Shalabh Saxena
opening
“We have paused Project Parivartan now, in fact, we did it a couple of quarters back.”
Shalabh Saxena
opening
“As this trend solidifies, we expect delinquencies and forward flows to reduce.”
Shalabh Saxena
opening
“So if this solidifies into a proper concrete trend, then I think we will be sure that the reversal has happened.”
Shalabh Saxena
opening
“We plan to take the count of dedicated recovery team to about 1,000 by March '25.”
Shalabh Saxena
opening
“The current trends, while they are encouraging and operations should normalize, hopefully by end of quarter 2 of next year.”
Mahrukh Adajania
qa
“So I just had a couple of questions that the new guardrails and one will be implemented in April as well.”
Mahrukh Adajania
qa
“But just for FY '26, because already, in the fourth quarter, we won't expect much growth.”
Shalabh Saxena
qa
“And hence, to your second question on the growth and what will be the AUM.”
Shalabh Saxena
qa
“My guess is year '26 will be a mix of consolidation, discipline and growth.”
Risks & concerns — 15 flagged
All of you are aware that since the beginning of the financial year, the microfinance industry in India has been going through a slightly difficult operating environment, owing to a multitude of factors.
— Shalabh Saxena
Spandana's portfolio was concentrated then in a few states, which was a key business risk.
— Shalabh Saxena
In times of stress, it is easier for the borrower to pay a smaller installment.
— Shalabh Saxena
Point number two, with easy availability of credit, many customers, many borrowers had availed loans from multiple institutions causing stress in their financial position.
— Shalabh Saxena
Group cohesion has suffered as a consequence resulting in individual door knock for collections, thus substantially increasing collection pressure on the branch staff.
— Shalabh Saxena
Recovery from delinquent pool is one major focus area where we believe borrowers will repay as the stress abates and once the industry adopts the slightly tighter credit rules.
— Shalabh Saxena
During the quarter, the company adopted a cautious approach to lending.
— Shalabh Saxena
We followed a cautious approach because of the fluid situation in the market and hence had curtailed our disbursements considerably.
— Shalabh Saxena
Our disbursement for the quarter was INR1,443 crores, a Y-o-Y decline of 43% and a 5% quarter-on-quarter decline.
— Shalabh Saxena
AUM at the end of quarter 3 was INR8,936 crores registering a decline of 14% Y-o-Y.
— Shalabh Saxena
The decline in PPOP was largely on account of shrinking loan book and increase in the opex because of the bench strength that we've created.
— Shalabh Saxena
NIMs declined as a result of decline in yield and increase in the cost of borrowing.
— Shalabh Saxena
Given the challenges, we'll continue to maintain a cautious stand until the green shoots solidify into concrete trends.
— Shalabh Saxena
How will that put further pressure on asset quality in the first quarter?
— Mahrukh Adajania
Does that include the impact of any guardrails?
— Mahrukh Adajania
Q&A — 11 exchanges
Q
So I just had a couple of questions that the new guardrails and one will be implemented in April as well. How will that put further pressure on asset quality in the first quarter? So you're talking about things peaking out in the first quarter, right? Does that include the impact of any guardrails? Or how do we view it? That's my first question. And secondly, that growth will slow down. This was a discussion at another call also. Growth will slow down post new guardrails. So what kind of AUM growth can we build for FY '26? I know longer term, it would pick up across the cycle. But just for FY
Shalabh Saxena
So thanks, Mahrukh. Your first question was around guardrails. As we speak, we already, as an industry, have implemented the guardrails one, which came into effect from July where there were various criteria which were laid down on the guardrail one, of which the primary one was the number of lenders, which was restricted to 4. So you can be the fourth, you cannot be the fifth. So while, yes, in the short term, it does create an impact because if you go back to post-COVID for the past 2 years, there have been instances where there were customers who were arrear and delinquent with somebody els
Q
My question was on the X bucket collection efficiency for states like Bihar, Karnataka and MP, which happens to be the key states for us. So if you can just highlight this kind of trend for these states.
Shalabh Saxena
This is the X bucket collection efficiency, the 97.8%, that is in Slide 5 or 6. That's the one you're talking about, right? Yes, yes, that is for the whole company, right? I mean I'm talking about these three – four states. Yes, yes, yes. I got it. I got it. So Bihar is about 30, 35 bps lower. Karnataka this month, last month was okay, this month is experiencing a bit of -- and you would have read news about whatever is happening. But that should settle because there is a lot of interventions. So that should settle hopefully by end of this month. But Karnataka this month is clocking slightly a
Q
So my first question is given that there are green shoots now in December, and you said that things are looking similar in January. Based on your conversations, do you think is there an outside chance that the implementation of the MFIN guardrail 2.0 can be permanently deferred?
Shalabh Saxena
No. So Abhijit, look, I can't speak for MFIN. We have given our position clearly. And there is no reason to not believe whatever deadline that MFIN has given. So it has been deferred from January to April. As far as we are concerned, we've gone that extra mile. I think we've put it out -- put out a slide and we have a section in the slide where we say that we will restrict ourselves to 3 lenders. Obviously, it's purely internal and voluntary because we do believe that it's important to take these slightly more tighter norms. I know there will be an impact. There will be a higher rejection. But
Q
Sir, my first question is on the net collection efficiency, which stood at 90.7%. If you can give some insights on how this net collection is moving month-on-month and maybe December, how it is and can Jan maybe first 15 days. So if you can just share qualitative comments on that.
Ashish Damani
So hi Renish, so December number, like Shalabh said, is 97.8% and it was disclosed... No sir, I was talking about the net collection efficiency, not x bucket? Yes. So the x buckets also, while we will give you -- we will -- from a trending point of view, we are seeing while the -- there is a good movement of about 10% to 12% on the 1 to 30. That's number one. What Renish we are also seeing is, and it is actually a little bit of it -- while it's good. The customers who have moved into GNPA, this month, the net collection efficiency has really gone up because the customer has started paying back
Q
Shalabh and Ashish, appreciate the company maintaining strong provision coverage on stage 2 and stage 3 despite the higher flows. My first question is, with the significant increase in loss in Q3, in the sustained covanent features, would it force us to raise capital in the very near term disregard of the market conditions, so as to get the confidence of the lenders back? And what are the ways of capital raise being evaluated and whether a promoter fee would commensurately participate in it?
Shalabh Saxena
So Rajiv, I'm not sure, I think you missed my commentary. And in fact, there is a point in... Sorry, sorry, I joined the call late. I'm sorry. Yes. No. Fair enough. So I'll also give a reference to the -- to Slide 8 of our investor presentation. Nevertheless, I'll answer your question. We had a Board today, and the Board has approved of equity raise of up to about INR750 crores, which is the confidence capital that you spoke about. At this point in time, we are at about 35%, 36% of CRAR. So technically and practically the balance sheet does not need capital because it is a very fortified and v
Q
I have two questions. One is when you report the net collection efficiency for the quarter. So -- and somebody mentioned on the previous question that you had INR677 crores of write-off on the portfolio. So the denominator for the quarter included this written-off book as well. So and hence the net book that is left after the write-off will have better collection efficiency in the quarter going forward, assuming -- now the denominator has reduced and there's no further slippage. Is that the right way to look at it?
Ashish Damani
Aviral, the number given here is after the write-off. If we look at pre write-off the number will be slightly lower. And we can give you that number offline. Understood. And secondly, so given the collection efficiency trend what sort of -- and the book from a delinquent book perspective is looking very similar to the Q2 book, the Q3 ending book. So -- and if the collection efficiency is not improving, can we assume or is it likely that we may see a similar credit result or credit provisioning needed plus write-offs in Q4 as what we have seen in Q3? Yes. So we are still on January 23, Aviral.
Q
Yes, one follow-up question on that. So do we expect or are we seeing any forward flows from the quarter end perspective? Or would we see -- even if the collection efficiency stay like where it is, it would mean that there is no further flow from where we are on the...
Ashish Damani
So Aviral, I'll take that one. Basically, what we were trying to explain earlier as well is your flows from the top have to kind of stabilize above -- I mean, below 1% level. So 99% once you get the collection efficiency. Then you have a normalized flow into 1 to 30 and subsequent buckets. What we have right now is a very abnormal flow driven by many factors at industry level, some, let's say, Spandana's own doing. But once you have that 99%, then there is approach that can be arrived to address all the other buckets. I think we are getting very close to addressing the first part, which is you
Q
Yes. So firstly, with respect to the Spandana plus 3 and Spandana plus 4 and more. How is the collection efficiency behavior out there, particularly in this portfolio? And how much is already there into the Stage 2 bucket? And when we look at it now, given that we know in terms of which are these customers, how are we working with them because I think it's almost like 30% of our book? And if it doesn't get renewed or refinanced, there is, again, a risk of this flowing into the -- maybe flowing into Stage 2 Stage 3 and write-off. And even like from the earlier bucket, you could see some moving
Ashish Damani
Yes. So the -- we are just pulling the numbers Kunal, while we speak. But in generic terms, I think it is very difficult to say what the industry will do and how the customer would behave. Because it's not like all the customers who are in, let's say, Spandana plus 4 are not paying. That's not the case. Yes, they are punching above their weight. Compared to AUM, the delinquencies will be higher in those buckets. So for example, Spandana plus 4, I think in the GNPA, the contribution is about 25% compared to the AUM, which is at 15.8%. So clearly, the weights are higher when you look at the deli
Q
Shalabh, just wanted to basically again touch base on the question. But we are looking at Spandana plus 4 or more lender association. I understand, of course, there's a denominator impact. But even if I adjust and look at it on an absolute basis, there is just INR40 crores quarter- on-quarter decline, which is like 3%. And this is despite having a INR660 crores plus of write- off, right? So basically, does it mean that at an industry level, even the first guardrail is not being adhered to?
Shalabh Saxena
I'm not sure how -- you need a lot of data to come to that conclusion, Viral. So I'm not exactly - - maybe we'll take it offline in terms of understanding how you go to that number, but... Basically, what I've look at Shalabh is, see you had some INR10,000-odd crores AUM, right, as of October or September, right? Of course, that is the September number on the denominator side. But when I look at September AUM, and apply the 13.8% and then what is your AUM, which is INR8,900 crores something in this quarter and I applied the 15.8%. The absolute decline is INR40 crores. This is after you having
Q
So my question is -- all those were limiting my questions, although there has been discussion on these numbers only till now. So my point or my question is that, so what are the recovery rates in the softer bucket, bucket 1 and bucket 2. And is there any improvement in the recovery rates in the last 3 months, if it is deteriorating? So what it was in September? And what are the numbers as of now? So that is my question number one. I have another question. So on the thing Spandana and the multiple lenders, the Spandana plus 1 and Spandana plus 2. So like you have taken the numbers from the bure
Shalabh Saxena
Yes, the second one, I'll answer, the first one, Ashish will answer. Do we have the number? Yes, we have. But we don't really – there is a specific purpose, we don't really have the number handy. Separately, we can connect and assess. Okay. Okay. First one was bucket 1 and bucket 2. I mean, we have already given the current bucket efficiencies, Rajeev, we've talked about that 97.84%, which is nothing but from the current bucket, the remaining is the flow. And the Stage 2 normally hovers around -- what we have seen is prior to June was around, let's say, 45% to 50% is now stacking at around 40%
Q
So thank you, all of you to -- for having attended this and showing interest in our organization. The company and the industry is obviously going through a slightly different phase, not the regular BAU. But given the trends that we have seen, we really hope that -- this works to everybody's advantage and most importantly, the customer's advantage because we deal with the segment, which is the so-called bottom of pyramid. And it's very important that the household there has a regular supply of formal credit at very reasonable rates to ensure that the income- generating loan that they take is pu
Management
Speaking time
Shalabh Saxena
41
Moderator
13
Ashish Damani
13
Viral Shah
9
Shreepal Doshi
6
Abhijit Tibrewal
6
Renish
6
Rajiv Mehta
6
Aviral Jain
4
Kunal Shah
3
Opening remarks
Shalabh Saxena
Thank you very much, Sagar. Good evening to all of you. Wishing all of you a very happy and prosperous New Year and a very happy in advance, the 76th Republic Day. The management team at Spandana is thankful you for your interest in Spandana and for taking time out to join us on this call. Most of you would have gone through the quarter 3 results that have been uploaded on the stock exchanges a couple of hours ago. All of you are aware that since the beginning of the financial year, the microfinance industry in India has been going through a slightly difficult operating environment, owing to a multitude of factors. However, before we dwell on those factors, let me take a step back and give you a context of what was the strategy we at Spandana adopted and what were we trying to deliver through it. And then we'll come to the results. Way back in July 2022, when we presented our Vision Document, we had identified a few key levers which we felt were important for the company to grow sustai
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