Spandana Sphoorty Financial Limited — Credit Ratings, 05-12-2024: Credit Rating- Revision

Spandana Sphoorty Financial Limited reported consolidated financial performance reflecting significant challenges. The company generated total income of ₹1,436.1 crore, down slightly year-over-year compared to ₹1,438.3 crore in the same quarter of FY2023. This resulted in a net loss of ₹160.6 crore, a stark decline from a profit of ₹12.4 crore in the previous year. The substantial drop in profitability led to a negative return on managed assets (RoMA) of -2.3%, a steep decline compared to the 4.1% in FY2024.

Challenges in the microfinance sector have driven gross stage 3 assets to 5.3% from 2.1% a year earlier, while 30+ days past due (dpd) delinquencies rose sharply to 10.8% from 3.0%, pointing to increased credit risk. Operational costs surged, with credit costs reaching 10.5% compared to prior levels of 2.1% in FY2024, illustrating the financial strain caused by higher delinquencies and operational efficiency issues amid a challenging macroeconomic landscape.

Despite these difficulties, Spandana retains a reasonably strong capitalization with a managed gearing of 2.4x as of September 2024. The recent revision of ICRA's outlook to negative is notable and reflects concerns over asset quality and profitability. Given the current trajectory and operational headwinds, this stock may be positioned as a hold, with investors advised to monitor upcoming performance closely for potential recovery or further deterioration.