Spandana Sphoorty - Articulation Of Next Five-Year Target From A Position Of Strength: Motilal Oswal

Motilal Oswal Report

Spandana Sphoorty Financial Ltd.'s new management has successfully navigated various disruptions and consequent asset quality stress. With strengthened processes, it is now ready to capitalise on the strong opportunity in the MFI sector and deliver an assets under management compound annual growth rate of 34% over FY23-FY26E.

We estimate Spandana to deliver FY26 return on asset/return on equity of 4.4%/17%, aided by:

1. operating leverage resulting in decline in operating cost ratios, and

2. normalisation in credit costs.

3. Spandana trades at 1.5 times September-25E price/book value.

Given the strong opportunity in the microfinance sector, we think that the company is poised for a further rerating if it executes well on its stated goal of quality growth. Maintain 'Buy' with a target price of Rs 1,200 (premised on 1.8 times Sep-25E book value).

Key downside risks:

1. Poor execution on asset quality could increase the credit cost; and

2. inability to retain talent in the senior/middle management teams.

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