Spandana Q4 Review - Earnings Inline; Net Interest Margin Sees Strong Expansion: Motilal Oswal

Motilal Oswal Report

Spandana Sphoorty Financial Ltd.’s Q4 FY24 profit after tax grew 22% YoY to ~Rs 1.29 billion (inline), driven by net interest margin expansion despite higher credit costs. In Q4, net interest income grew 43% YoY to ~Rs 3.85 billion (9% beat). FY24 profit after tax stood at ~Rs 5 billion (versus Rs 124 million in FY23).

Pre- provision operating profit in Q4 grew ~2% YoY to Rs 2.7 billion. Spandana continued to pursue customer acquisition-led growth with the addition of ~440,000 customers (up 30% QoQ). The total borrower count rose ~47% YoY to 3.32 million.

Spandana has refined its processes by adopting the right tools and technologies. The new management team has fortified governance and risk controls and scaled up multiple technology-related initiatives.  Spandana trades at 1.2 times March-26E price/book value, with return on asset/return on equity of 4.4%/17% in FY26E.

Given the strong opportunity in the microfinance sector, we think Spandana is poised for a further rerating if it navigates Project Parivatan well and demonstrates stability in forwards flows and credit costs.

Maintain Buy with a target price of Rs 1,075 (premised on 1.5 times FY26E BV).

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