Spandana Sphoorty Financial Limited — Credit Ratings, 03-02-2025: Credit Rating

Net loss for Spandana Sphoorty Financial Limited reached ₹601 crore in 9M FY25, a significant decline from a profit of ₹501 crore in FY24. This translates to a return on average total assets (RoTA) of -6.98%, down from 4.47% the previous year. The company's total operating income dropped to ₹2,005 crore from ₹2,511 crore in FY24, reflecting a challenging operational environment.

The primary drivers of this steep loss include a surge in credit costs, which escalated to 16.08% (annualized) compared to just 2.32% in FY24, alongside rising operational expenses, primarily due to higher employee costs aimed at stabilizing the workforce amid high attrition rates. The company's gross stage 3 assets have notably worsened, jumping to 5.25% as of December 2024 from 1.68% in March 2024, indicating significant asset quality issues.

On the balance sheet front, as of December 2024, Spandana's total assets stood at ₹9,718 crore, with capital adequacy remaining robust at 36% despite a contraction in its consolidated assets under management (AUM) to ₹8,936 crore. However, the company has faced covenant breaches related to borrowings totaling ₹641 crore, heightening liquidity concerns going forward.

Investors should consider holding their positions as Spandana navigates through its current challenges, particularly focusing on successful capital raising initiatives and improvements in profitability metrics to restore confidence. The outlook remains cautious, burdened by the ongoing microfinance sector pressures and potential borrower defaults.