Spandana Sphoorty Financial Ltd Partly Paidup Q2 FY2026 Concall Summary

Key Takeaways

• Recovery is underway, led by new-book quality: X-bucket collection efficiency rose to 98.7% in September, and the FY26-disbursed book is performing at 99.9%, giving management confidence the microfinance asset class has turned a corner.
• Disbursements ramped sharply from a low base: Q2 disbursements hit Rs. 934 crores, up from Rs. 280 crores in Q1, with a monthly run-rate target of Rs. 700+ crores by Q4.
• PPOP is still negative, but the path to breakeven is mapped: Negative PPOP of Rs. 40 crores was driven by AUM decline and interest reversals; management expects to turn PPOP positive as GNPA pressure eases, likely next quarter.
• Credit filters are deliberately tight, suppressing near-term growth: Internal rules reject 80% of new members and 65% of existing ones, far stricter than SRO norms, which caps volume now but is producing a pristine new book.
• What to watch next quarter: Whether the Rs. 500+ crore monthly disbursement run-rate materializes, whether GNPA flows actually ease as forecast, and the outcome of the CGFMU deliberation.

Asset Quality & The New Book

• Collection efficiency improved across the board: X-bucket rose from 97.9% in June to 98.7% in September, with Karnataka now in line with the national average. October dipped slightly to ~98.5% on fewer working days, festive season and floods.
• Top-5 states all improved: The five largest states by AUM showed an improving X-bucket collection efficiency trend from July through September.
• The FY26 book is nearly spotless: Loans disbursed in FY26, which were 28% of the balance sheet in September and expected at ~37% by end-October, have a delinquent book of just 0.1%. 72% of these customers had fewer than two lender relationships at disbursement.
• Internal filters are far stricter than regulation: The internal rule engine rejects existing customers with over 30 DPD and new customers with even 1 DPD, versus the SRO's 60-day allowance. New-member rejection runs at ~80%, existing at ~65%.
• Multi-lender stress is real and being addressed: Customers with more loans show higher delinquencies across buckets; the push toward customers with only 1-2 lender relationships should bring that number down over time.
• Flow rates into delinquency are slowing: The flow rate from the current bucket has reduced from 2.5%-3% to 1.5%. As the new book grows as a share of AUM, flows into subsequent buckets should slow significantly.
• Provisioning remains heavy at 80%: Portfolio provisioning is maintained at 80%. Technical provisions of Rs. 86 crores are a subset of write-offs, an additional 20% cost that would not have been incurred had those assets stayed in GNPA.

Damani: "Gives us a lot of confidence that the path to recovery in the microfinance asset class has kicked off and from here on, it should only improve is how I kind of look ahead."

Disbursement Ramp & Growth Outlook

• Disbursements surged QoQ: Q2 disbursements of Rs. 934 crores compared to just Rs. 280 crores in Q1, with month-on-month improvement and better portfolio quality. October was lower than September due to fewer working days and festivities.
• The near-term trajectory is steep: Management expects to deliver over Rs. 500 crores in monthly disbursements in Q3, rising to a Rs. 700+ crore monthly run-rate in Q4.
• AUM should start growing from here: After declining, AUM growth should be recorded as disbursements step up, though for the full year versus last year it will be more flattish.
• Only 7% of eligible customers were lent to in H1: Of 10 lakh eligible customers, 7% received new loans during H1; 43% remain lendable under internal rules, and roughly 2 lakh are ex-customers. New customer acquisition rose to 22% of loans in Q2 from 15% in Q1 and will be pushed further.
• Bihar is a standout: Bihar has been performing strongly at 98.8% collection efficiency, with a similar number in October.
• Andhra Pradesh lags on floods: Most states are near the national average, but Andhra Pradesh has seen floods and other challenges; more improvement is expected there.

Damani: "We should start delivering over Rs. 500 crores in the current quarter and the next quarter, our run rate should be something around Rs. 700 plus crores on a monthly basis for the next quarter."

Profitability & Margins

• PPOP was negative Rs. 40 crores: The decline was driven by lower AUM and interest reversals from flows into the GNPA bucket.
• Yield and NIM both improved QoQ: Yield rose to 19.6% from 19.4%, and NIM to 8.4% from 8.2%, with further improvement expected as the new portfolio grows as a proportion of AUM.
• Credit cost is trending down: With flow rates from the current bucket dropping to 1.5% and the new book performing at 99.9%, management does not expect quarterly flows to exceed the current Rs. 150 crores.
• Operating costs are being rationalized: 101 branches were merged or closed during H1 FY26, and further improvements to the cost structure are expected in coming quarters.
• The path to operating profit runs through GNPA relief: Management expects to see first PPOP and then operating profits as GNPA pressure eases, likely next quarter.

Funding, Capital & Subsidiaries

• Rights issue closed successfully: Rs. 200 crores were raised during the quarter through the partly paid rights issue.
• Debt funding remains available: Rs. 598 crores were raised over the last two months, and management is confident of financing all future lending plans.
• Covenant comfort is intact: Management stated it is comfortable on covenants, with challenges expected to subside as performance improves.
• Criss Financial Micro LAP is performing well: The Rs. 290 crore Micro LAP book has very low slippages, under 1% NPA. The secured mix has increased from 13% to 39% over the past year, with a target of 50%-55% by year-end and 70-30 secured-to-unsecured over time.
• Criss unsecured individual loans are stressed: That portfolio is not behaving in line with Micro LAP due to floods, attrition and other stress in AP/Telangana; the unsecured portion will remain stable or see only marginal growth while LAP grows proportionately more.

Recovery & Collections Infrastructure

• Legal and digital recovery channels are scaling: 90,000 demand notices and 3.3 lakh legal notices have been issued, with Lok Adalat proceedings against 8,600+ customers across 4 states. Digital channels including QR code, SMS and BBPS payments have been introduced.
• Recovery is still in early innings: Rs. 7.7 crore has been recovered so far from initiatives that began around August, so the trajectory and numbers should improve as the quarter progresses.

Damani: "We have been able to recover Rs. 7.7 crore so far through these initiatives and please bear in mind that these initiatives were initiated sometime around August which means this will show a better trajectory, better numbers as we go forward into the quarter."

Guidance & Commitments

Key Metrics