Spandana Sphoorty Financial Limited — Credit Ratings, 12-02-2025: Credit Rating- Revision

Spandana Sphoorty Financial Limited reported a significant downturn in financial performance, recording a consolidated loss of ₹600.9 crore for 9MFY25. This represents a decline compared to a profit of ₹500.7 crore in FY24, highlighting a concerning trend in profitability with an annualized return on assets of -7%. The downturn is attributed to elevated credit costs and operational challenges affecting asset quality, evidenced by a rise in gross stage 3 assets to 5.2% as of December 2024, significantly up from 1.7% a year prior.

Total consolidated assets stood at ₹971.68 crore, with total tangible equity at ₹273.48 crore. The company's capital adequacy ratio remained strong at 31.3%, although leverage has increased to 2.5x due to declining asset management.

On the revenue side, Spandana experienced a decrease of 15.2% quarter-on-quarter in its AUM to ₹893.6 crore during 3QFY25, reflecting challenges in disbursements. With a borrower base of 2.96 million, the company must address operational hurdles stemming from staffing issues and the transition in collection strategies to stabilize performance.

Strategically, Spandana needs to enhance its funding profile to withstand market pressures. Factors including a geographically diverse portfolio and prior equity infusions provide some support. Nevertheless, the company's recent downgrade in credit rating to IND A/Negative underscores rising investor caution.

Given the ongoing operational challenges and profitability pressures, a cautious stance is advised for investors, leaning towards a hold until visible improvements in asset quality and operational stability materialize.