Spandana Sphoorty Financial Ltd Partly Paidup Q3 FY2026 Concall Summary

Key Takeaways

• Turnaround quarter, PPOP positive: The company swung to a PPOP of ₹8 crores from a ₹40 crore loss QoQ, driven by sharply better collections and a yield jump to 22.4%.
• New book quality is the foundation: Loans originated after April 2025 are running at 99.8% collection efficiency, giving management the confidence to target ₹1,500 crores in monthly disbursements.
• Clean-up is largely done: An accelerated write-off of ₹214 crores and a GNPA drop from 4.97% to 2.6% signal the old stressed book is nearly resolved, with this likely the last quarter of the aggressive approach.
• Yield expansion, not lower funding costs, will drive NIM: Reported yield rose 280 bps QoQ to 22.4% and is expected to trend toward 25% as the new book grows, while cost of borrowing is stuck at 12.5-13%.
• What to watch next quarter: Whether the ₹1,500 crore disbursement run-rate is achieved, if the company breaks even as targeted, and if the 90+ collection team can sustain its momentum.

Portfolio Clean-Up & Asset Quality

• Accelerated write-offs likely ending: ₹214 crores in write-offs were taken using a 180-days-plus engagement-based approach, deviating from the formal 455-day policy. Management stated this is probably the last quarter for this method.
• GNPA halves: Standalone GNPA fell to 2.6% from 4.97% QoQ, reflecting both the write-offs and improved collections.
• Flow forwards improve sharply: The 1-90 DPD flow forward rate dropped to 2.5% of AUM from 5.5% QoQ, indicating a slowing pipeline of new stress.
• 90+ recovery engine built: A dedicated 800-person team collected ₹65 crores in the 90+ bucket this quarter. The team will expand to 1,500 and be retained for at least two more quarters to mine the ~₹2,700 crore NPA pool.
• Recovery ambition: Management is targeting ₹20-₹25 crores per month in recoveries over the next three quarters.
• Slippages and credit cost: Total slippage was ₹152 crores, but net credit cost taken was ₹58 crores after factoring in recoveries and an ARC transaction.

Damani: "Probably, this will be the last quarter in which we take this approach. So, yes, 180 days plus and engagement during the quarter is what we have looked at."

The New Book & Growth Engine

• New book performance is pristine: The book sourced after 1 April 2025, under new SRO guardrails, has a 99.8% collection efficiency. This book is expected to reach 90% of the total portfolio by end of FY26.
• X-bucket efficiency rises: Pan-India X-bucket collection efficiency improved to 99.3% from 98.7% QoQ, driven by the growing share of the new book.
• Disbursement ramp-up: The immediate target is to stabilize monthly disbursements at ~₹500 crores, then scale to ₹550-₹600 crores, reaching a ₹1,500 crore run-rate by Q4 FY26.
• Customer base strategy: 86% of customers have less than ₹1 lakh in household outstanding, creating room for top-up loans. Management sees a 40-60 or 50-50 mix of existing versus new customers as achievable.
• Rejection rates stay high for now: Rejection rates hover at ~60% and may remain elevated for a couple of months due to the lingering impact of the past year's events.
• Geographic focus: Growth will concentrate in the top six states, with a planned expansion in Tamil Nadu and a watchful stance on Kerala.

Yield, NIM & Profitability Path

• Yield jumps on lower interest reversals: Reported yield rose to 22.4% from 19.6% QoQ, largely because interest reversals fell to ₹14 crores from ₹33 crores in Q2. The blended lending rate on the new book is 25.3%, so yield should migrate closer to 25% as the new book becomes dominant.
• NIM expands despite funding cost pressure: NIM widened to 11.1% from 8.4% QoQ, even as cost of borrowing rose 40 bps to 12.6%.
• Cost of borrowing stuck: With a 50-50 reliance on capital markets and bank funding, the cost of borrowing is expected to hover between 12.5% and 13% with no immediate improvement. A shift to 60% bank funding is targeted if PSU banks re-enter after a credit guarantee scheme.
• PPOP turns positive: The company reported a PPOP of ₹8 crores versus a loss of ₹40 crores QoQ, though the overall loss was ₹95 crores due to write-offs and a one-off labor code cost of ~₹8.4 crores.
• Break-even is the immediate goal: Management's stated objective is to break even in Q4 FY26, building on two consecutive quarters of positive PPOP.

Krishnan: "We will work hard, you just pray. It will happen."

Operating Structure & Efficiency

• Branch rationalization: The network will shrink from ~1,500 to ~1,250 branches by merging non-productive ones, not shutting them down. This footprint is deemed sufficient for a ₹12,500 crore AUM over the next couple of years.
• Delayering the organization: Management layers built for a 15,000-20,000 crore AUM target are being reduced to align with the current ~₹4,000 crore book size.
• OPEX trending down: Absolute OPEX has fallen from ₹884 crores two years ago to ₹720 crores this year, with scope to reduce further.
• Loan officer productivity: By moving 90+ collections to a dedicated team, regular loan officers can focus on business, improving productivity. The steady-state target is 4,800 to 5,500 loan officers.
• New LOS platform: The company plans to migrate from Jayam Solutions to a Perfios-developed platform within 5-6 months, becoming the first MFI on that system. The platform is expected to improve contact with a customer base that frequently changes mobile numbers and locations.

Krishnan: "In this segment, when we are dealing with customers who are largely illiterate, bottom of the pyramid, they keep changing their mobile numbers at frequent intervals... there are certain technological advancements we see in Perfios which will help us be in touch with those customers at regular intervals."

Subsidiary & New Initiatives

• Criss Financial merger proposed: The 100% subsidiary (~₹650 crore book) will be merged into Spandana, a process expected to take 6-9 months and complete within the coming financial year. The merger helps address Criss's high cost structure in its LAP business.
• Criss stress contained: Criss's individual loan book (~₹350 crores) has seen high impairment and a special team is being deployed for collections. The LAP book (~₹300 crores) is performing well with GNPA just over 1%.
• LAP growth ambition: The LAP book is targeted to grow from ₹300 crores to ~₹1,000 crores over the next couple of years.
• Individual loan pilot planned: Contours for a new individual loan product are drawn. A pilot in 1-2 clusters will launch after the Perfios platform is in place and if the LAP product performs well.
• CGFMU deferred: Management sees no point in taking CGFMU now after the rough patch, and in a BAU environment with sub-3% credit costs it does not make sense. The scheme is being studied for possible adoption in the new financial year.

Guidance & Commitments

Key Metrics