ICICI Securities: Business Resiliency To Cushion Earnings Volatility Of Spandana Sphoorty

ICICI Securities Report

We attended Spandana Sphoorty Financial Services Ltd.’s business update call and the key takeaways include -

1. Cumulative collection efficiency (April 2020 to September 13, 2020) stands at 55%; it collected more than Rs 14 billion versus demand of Rs 31 billion since the lockdown,
2. August 2020 collection efficiency (excluding arrears) stands at approximately 78/80%, management expects it to reach 98% (borrowers) by October 2020,
3. Kerala and Odisha are lagging in collections, while Gujarat, Andhra Pradesh, Karnataka, Telangana, Madhya Pradesh are leading,
4. The company is comfortably placed on liquidity - raised approximately Rs 15 billion since lockdown, at an average cost of borrowing of 9.95% (approximately 10.6% excluding assignments) and
5. Company expects industry-level write-offs to remain 3-4% due to Covid-19 pandemic.

While approximately 13% inactive customer base poses near-term risk on asset quality, improving collection across states, diversified operations, adequate provisioning buffer and comfortable capital position (capital adequacy ratio 53%) would ensure it navigates through the current cycle relatively better than peers.

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