Spandana Sphoorty Financial Ltd Partly Paidup Q1 FY2027 Concall Summary

Key Takeaways

• Turnaround quarter, cautious optimism: AUM grew 11% QoQ, PAT tripled to ₹12 crores, and credit cost halved to 2.1%, but management is clear that the recovery is fragile and depends on sustaining collection discipline.
• Collections are the engine: X-bucket collection efficiency held at 99.5%, driving a negative net credit cost and pulling GNPA down to 3.6%; the ₹51 crores recovered from the 90-plus pool is the single biggest swing factor in the P&L.
• Funding costs are falling fast: Marginal cost of borrowing dropped 70 bps QoQ to 11.3%, and bank share of borrowings rose to 47%, signaling that lender confidence is returning after the stress cycle.
• The old NPA pool has a shelf life: Management flagged that this is the last year it will pursue recoveries from the older 90-plus book, meaning a tailwind this year becomes a structural absence next year.
• What to watch next quarter: Whether the 100-branch revival initiative gains traction, the individual loan pilot in Madhya Pradesh produces usable data, and whether monsoon-related stress stays absent from July's collection efficiency.

Portfolio Quality & Collections

• Collection efficiency sustained: X-bucket CE held at 99.5% through the quarter and into July, with no early signs of elevated bounces or forward flows despite monsoon uncertainties.
• 90-plus recoveries drove the P&L: ₹51 crores collected from the 90-plus pool (₹24 crores from write-offs, remainder from NPLs), with a monthly run-rate of ₹16–18 crores now established from that pool.
• Recovery tailwind is finite: Management stated explicitly that this is the last year of focusing on the older 90-plus book; from next year, customers who are 2-plus years delinquent are not expected to pay, though current-year 90-plus collections will always remain.
• Forward-flow indicators are clean: 1–90 dpd improved to 1.2% from 1.3%, GNPA improved to 3.6% from 3.8%, and Net NPA fell to 0.68% from 0.73%.
• Provisioning remains conservative: The company continues to hold over 80% provisioning on NPAs, and is working to raise Stage 1 coverage to at least 50% in the 1–30 segment, up from the current 40 bps overall on Stage 1.
• Recovery target set: Management is targeting ₹150–200 crores from the existing 90-plus pool this year, and is trying to see if it can exceed ₹200 crores.

Venkatesh Krishnan: "This is the last year we're going to focus on the so-called 90-plus book because after that, we don't have expect customers who are 2 years or more thereafter paying us."

AUM Growth & Disbursement Momentum

• AUM crossed ₹4,887 crores: 11% QoQ growth, driven by continued disbursement momentum; the growth rate was 12% in the prior quarter, so the pace is holding.
• New member addition accelerated: The share of new members in total additions rose to 61% from 46% in the March quarter, with 1.38 lakh total members added versus ~1.1 lakh last quarter.
• Credit guardrails are tight: Spandana plus 3 borrower leverage is only 3.7%, versus 20–25% historically, and 98% of new customers were single-borrower at the time of loan origination.
• New portfolio share nearly complete: 91% of the loan book now consists of loans originated under the new SRO guidelines post 1 April 2025, expected to reach ~95% next quarter.
• Disbursement target: ₹6,000–6,500 crores for FY27; AUM exit target for March '27 is a little upwards of ₹6,000 crores, with March '28 broadly ₹10,000 crores or thereabouts, though guidance will be firmed up in August/September.
• Branch strategy is about revival, not expansion: The 1,250-branch count will largely stay; some branches may be added in Maharashtra and Tamil Nadu, and in gaps within existing large states, but the priority is juicing out existing branches.

Venkatesh Krishnan: "There are only 3 things in this industry one needs to take care of. One is your process and controls. Ad nauseam, I'm going to keep talking about this. Second is, point number 2 is discipline. And third is calibrated growth."

Income & Margins

• Yield jumped to 24.6%: Up from 22.8% QoQ, driven by portfolio quality improvement and a favorable AUM mix; reversals are lower now because 90-plus reversals are not as heavy as in previous quarters.
• No further rate increases planned: The last lending rate increase was in October '25; management expects yield to see marginal improvement from current levels, close to the 25.25% ideal disbursal yield, then sustain.
• NIM expanded sharply to 12.5%: Up from 9.9% QoQ, driven by the combination of improving yield and declining borrowing cost.
• Borrowing cost decline is structural: Marginal cost of funding fell to 11.3% from 12% QoQ, a 70 bps drop; overall cost of borrowing fell to 12.8% from 13.2%, helped by CGS sanctions (~₹545 crores sanctioned) and a rating improvement.
• Bank share rising: Bank share of borrowings rose to 47% from 44%, reflecting improved lender confidence; PSU bank participation is expected to increase, which should bring down the cost of acquisition further.
• Opex discipline: Full-year opex target is around ₹675 crores, down from ~₹760 crores last year; next year, a ~10% increase is planned on that base. Growth is expected with very limited or no investments on increasing from a cost side.

Strategic Initiatives

• 100-branch revival initiative: 100 underperforming branches, identified by weak business or collections or both, have been carved out and assigned to a separate team for revival rather than merger or closure, which management says rarely succeeds in microfinance.
• Individual loan product pilot: Ready to launch in 8 branches in Madhya Pradesh with 8–10 people; the product is better underwritten with eNACH facility, initially for existing customers, later for new-to-Spandana customers with a track record elsewhere. A pan-India rollout and migration to group company Criss Financial is planned.
• New LOS platform migration: Working on a new LOS platform (Perfios platform from Jayam); expected to be in UAT by the end of Q2 FY27, with migration across all 1,250 branches planned for October to December.
• Bot calling and digital collections: Hired bot-calling services to increase reach to delinquent customers; telecalling QR collections are receiving ₹30-odd lakh per month directly from customers online, with a target to increase to ₹50 lakhs.
• El Niño preparedness: Credit and business teams jointly developed a strategy for new customers with no credit exposure and those in rented premises in select districts and states likely to be impacted.
• Leadership bench filled: The new Chief Business Officer (South) position, vacant for a couple of months, has been filled; all four CBO positions (North, South, East, West) are now staffed.

Venkatesh Krishnan: "We carved out 100 branches where there was scope for improvement, either on the business or collections of both. And we're trying to put a separate team to revive this because merger or closure in microfinance rarely leads to success."

Funding, Liquidity & Capital

• Liquidity remains high at ₹1,316 crores: Partly timing-related due to quarter-end drawdowns; management intends to optimize overall liquidity carried on the balance sheet as the environment improves, while staying cognizant that in microfinance it is better to stay liquid.
• Borrowings raised at favorable pricing: ₹1,597 crores raised in Q1 FY27; the overall cost of funds should see further improvement in the coming quarter as incremental lower-cost borrowings replace higher-cost past borrowings.
• Rights issue balance expected soon: ₹200 crores expected before the end of the current quarter.
• Kedaara expected to stay invested: Management's view is that the PE investor will remain for at least the next 2–3 years; when asked which metrics Kedaara prioritizes in evaluating senior management, the answer was that management decides strategy and Kedaara has no role in what to grow, which markets, or how to grow.

Ashish Damani: "Having said that, we should always be of the cognizance that in microfinance, it's always better to stay liquid than keep gasping for that."

Guidance & Commitments

Key Metrics