Spandana Sphoorty Financial Limited — Credit Ratings, 11-02-2025: Credit Rating- Revision

Spandana Sphoorty Financial Limited has announced a board meeting regarding the financial results for the quarter and half-year. The company's total managed assets as of December 2024 stood at ₹11,379 crore, down from ₹12,597 crore in the previous year. Total income for the same period increased to ₹2,016 crore, reflecting a year-over-year growth of approximately 10.6%. This increase may be driven by adjustments in operational strategies amid challenging market conditions.

However, Spandana reported a net loss of ₹601 crore for the nine months ending December 2024, compared to a profit of ₹373 crore in the prior year, indicating significant friction in profitability. Earnings Per Share (EPS) for the period is negative, suggesting pressure on shareholder returns, primarily due to heightened credit costs rising to approximately 17.8%, exacerbated by an increase in gross NPAs to 4.9%.

Operational costs have surged, given the necessary adjustments for maintaining recovery efforts amid high borrower attrition and over-leveraging, which caused GNPA levels to rise significantly from earlier periods.

In terms of balance sheet health, the company maintains a comfortable capital adequacy ratio of 36%, and a low gearing ratio of 2.2 times. Cash and cash equivalents are robust at ₹1,311 crore, ensuring liquidity to meet short-term obligations.

Strategically, Spandana is focusing on calibration of its growth and recovery strategies to contend with the ongoing asset quality challenges while attempting to raise additional equity of up to ₹750 crore, which would enhance its net worth.

Investor Insight: Given the current trajectory of financial performance and ongoing asset quality issues, a cautious approach is advised, leaning towards holding the stock as the company seeks to stabilize its operations and mitigate risks inherent in the microfinance sector.