Sector – NBFC

Spandana Sphoorty Financial Limited.

9th December, 2019 CMP – `1226/- View – ACCUMULATE

Company Background and Business Model Important Statistics (`crs)

Financial Products – Spandana Sphoorty Financial Ltd (Spandana) is a rural focused M.Cap (Cr) `7,868.11
Micro-Finance Institution with a pan India presence. It mainly focuses on ‘Abhilasha’ 52 Week H/L (`) 1400/690
loans whose primary objective is to empower women in setting up and expanding NSE Code SPANDANA
income generating activities, smoothen household cash flows and acquire productive BSE Code 542759
assets. For its income generation loans, it presently focus on areas such as agriculture,
agriculture allied activities, small-scale activities and emergency needs.

Details of key products offered by Spandana

Loan size in ` Interest rate
Product category Tenure
(range) (%)
Core Product – 98% of AUM
Income generation (Abhilasha)
6,000 – 60,000 24% 1-2 Years

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loans

Other Prodcuts – 2% of AUM

Loans against property 100,000 – 1,000,000 22-26% 1-10 Years
Education Loans 10,000-20,000 24% 1-4 Years
Gold loans 10,000 – 1,000,000 16-27% 1 to 12 Months

 Loan Portfolio – Spandana has reported ~52% AUM CAGR from FY16-19 to
`4,437 Cr. Post exit from CDR in FY17, Spandana was able to optimize the ticket
sizes and also acquire new clients at existing and new branches. Overall
disbursement for the company has also witnessed robust growth of CAGR ~55%
from FY17-19.
Figure 1- Strong Growth in AUM Figure 2- Led by Robust
5,000 (Ex-AP)... 6,000 Disbursement
4,000 5,000

3,000 4,000
3,000
2,000
2,000
1,000
1,000
- -
FY16 FY17 FY18 FY19 FY17 FY18 FY19

 Geographical Presence –Spandana faces limited concentration risk with portfolio

spread across 17 states covering more than 272 districts.

To address geographic concentration risk, SSFL management has maintained

stringent exposure caps at the state, district and branch levels. With this adopted
norm, the company’s operations are geographically well-diversified with no single
state contributing more than 22% of AUM, no district contributing more than 1.9%
of AUM and no branch contributing to more than 0.4% of AUM as on September
30, 2019.

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 Sector – NBFC
Spandana Sphoorty Financial Limited.
9th December, 2019 CMP – `1226/- View – ACCUMULATE

 Asset Quality –The company’s gross non-performing assets (GNPA) were 7.9 per
cent of the loan portfolio in FY19, largely on account of `358.6 crore of NPA from
the old AP portfolio and were fully provided for. Excluding Andhra Pradesh (AP)
portfolio GNPA were 0.1% for FY19.

Post demonetisation in Nov’16, SSFL has efficiently managed the situation and
maintain industry leading portfolio quality with collection efficiency for FY17 at
97.1%, 99.3% and 99.7% in for FY18 and FY19, on a consolidated basis
respectively.

Figure 4- .... led to sharp Figure 5-...Reflected in collection

Figure 3- Well diversified Geography 40% improvement in Asset Quality...
120% presence with proper risk management.. efficiency trends
100% 99.70%
35%
100% 99.40% 99.30%
100%
30%
80%

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99%
14% 13% 14% 25%
60% 11% 99%
20% 22% 19% 20%
40% 20%
22% 15% 98%
23% 21%
20% 20%
10% 98%
19% 18% 22% 13%
97.10%
0% 5% 97%
FY16 FY17 FY18 FY19
0% 97%
FY14

FY15

FY16

FY17

FY18

Karnataka Madhya Pradesh Orissa FY19 96%

Maharashtra Chattisgarh Andhra Pradesh 96%
Jharkhand Kerala Others GNPL GNPL (Ex-AP) FY16 FY17 FY18 FY19

 Liability – Spandana, post its exit from CDR scheme in 2017, has consistently
diversified its overall liability with incremental borrowings being obtained from
NCDs (~47%), NBFC (~18.5%) instead of remaining highly dependent on bank
borrowings (~35% vs 100% earlier) leading to a reduction in Average Effective
Cost of Borrowing from 16.3% for FY17 to 12.8% for FY19.

Figure 7- ...Aiding in superior NIM

Figure 6- Diversified Borrowing Profile post exit from
35.0%
CDR 29.4%
30.0% 25.6% 26.1%
120%
25.0%
100%
14% 18% 20.0%
80% 16.1%
14.2% 13.5%
44% 15.0%
60% 47%
100% 10.0%
40%
20% 42% 35% 5.0%
0% 0.0%
FY17 FY18 FY19 FY17 FY18 FY19

Bank Loans NCDS NBFC Loans Yields Cost of Funds NIM

Way2Wealth Brokers Pvt. Ltd. (CIN U67120KA2000PTC027628) SEBI Rgn. No. : INH200002739
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 Sector – NBFC
Spandana Sphoorty Financial Limited.
9th December, 2019 CMP – `1226/- View – ACCUMULATE

 Key Risk – High exposure in the state of Orissa possess elevated risk of defaults
in the event of cyclone and floods in the state.
Unsecured nature of portfolio may affect asset quality & profitability in case of
defaults.

Peer Comparison Credit Access Grameen Spandana**

Gross AUM (` in Cr.) 7,905 5,407
GNPA (%) 0.52 0.77
Cost/Income (%) 39.8 20.3
Capital Adequacy (%) 34.2 51
NIM (%) 12.1 18.6
ROA (%) 4.8 14.6**
ROE (%) 16.1 35.4**
Price/Book Trailing ~4.5 ~3.3

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** Spandana ROA & ROE pre-tax numbers have been mentioned in Investor Presentation.

Views & Valuations

Micro-Finance in India remains the bright spot with `5-6 Tn opportunity (As
per ICRA Research- Report titled “Indian Microfinance sector” dated 09 July,
2019). Spandana is in a better position to capitalize well on this growing
demand considering its thrust on rural market, ample liquidity, robust return
ratios, low operating expenses, positive ALM and superior asset quality.
Spandana trades at a discount of ~25% to Credit Access-its closest
peer. Comparing the two, Spandana has better metrics in each of the
segment which is the key reason for our optimism on the stock&
hence we recommend to ACCUM ULATE the stock in a staggered
manner around the current market price and any decline (1250-
1100). We expect the valuation gap to narrow on sustainable
performance by Spandana.

Way2Wealth Brokers Pvt. Ltd. (CIN U67120KA2000PTC027628) SEBI Rgn. No. : INH200002739
No. 14, Frontline Granduer, Walton Road, Bangalore-560001; Website: www.way2wealth.com Email: [email protected]
Way2wealth Research is also available on Bloomberg WTWL <GO>
 Sector – NBFC
Spandana Sphoorty Financial Limited.
9th December, 2019 CMP – `1226/- View – ACCUMULATE

Disclaimer
Analyst Certification: I, Harshil Gandhi, the research analyst and author of this report, hereby certify that the views expressed in this research report
accurately reflect our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research.
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Disclosure of Interest Statement Spandana Sphoorty Financial Limited. as on December 9th, 2019
Name of the Security Spandana Sphoorty Financial Limited.
Name of the analyst Harshil Gandhi
Analysts’ ownership of any stock related to the information NIL
contained
Financial Interest
Analyst : No
Analyst’s Relative : Yes / No No
Analyst’s Associate/Firm : Yes/No No
Conflict of Interest No
Receipt of Compensation No
Way2Wealth ownership of any stock related to the information
NIL
contained
Broking relationship with company covered NIL
Investment Banking relationship with company covered NIL
This information is subject to change without any prior notice. Way2Wealth reserves at its absolute discretion the right to make or refrain from
making modifications and alterations to this statement from time to time. Nevertheless, Way2Wealth is committed to providing independent and
transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.

Way2Wealth Brokers Pvt. Ltd. (CIN U67120KA2000PTC027628) SEBI Rgn. No. : INH200002739
No. 14, Frontline Granduer, Walton Road, Bangalore-560001; Website: www.way2wealth.com Email: [email protected]
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