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Spandana Sphoorty freezes at 5% lower circuit on weak Q3 results

A wide set of challenges including borrower leverage, dilution of JLG (joint liability group) model, poor center meeting attendance and high attrition continue to impact the microfinance sector

The credit bureau CRIF High Mark’s latest report on microfinance, ‘Microlend’ has it that at end-June 2024, the systemic book at Rs 4.32 trillion, marked a quarter-on-quarter decline of 2.3 per cent even though on a year-on-year basis, it is up 20.3

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SI Reporter Mumbai

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Spandana Sphoorty Financial share price was locked in the lower circuit of 5 per cent at Rs 324.65 on the BSE in Friday's intraday trade, with no buyers on the counter, after the company reported a net loss of Rs 440 crore in the December 2024 quarter (Q3FY25).
 
The microfinance institution (MFI) had posted a profit after tax of Rs 127 crore in the year ago quarter.
 
Till 10:21 AM, a combined 213,000 equity shares had changed hands on the counter and there were pending sell orders for 210,000 shares on the NSE and BSE. In comparison, the BSE Sensex was down 0.37 per cent at 76,236. The stock had hit a 52-week low of Rs 305.50 on December 26, 2024.
 
 
In Q3FY25, the company's net interest income declined 14 per cent year-on-year (Y-o-Y) at Rs 265 crore. Disbursements declined by 43 per cent Y-o-Y to Rs 1,443 crore from Rs 2,542 crore in Q3FY24. The assets under management (AUM), too, shrank by 14 per cent Y-o-Y to Rs 8,936 crore in Q3FY25 from Rs 10,404 crore in the year-ago quarter.
 
Reflecting stress on its loan book, the gross non-performing assets (GNPAs) rose to 4.85 per cent of total advances from 1.61 per cent in the year-ago quarter, while net NPAs increased to 0.98 per cent in Q3FY25 from 0.48 per cent in the corresponding period of last year.
 
The management said, the microfinance industry in India has been going through a challenging phase in the current financial year. A wide set of challenges including borrower leverage, dilution of JLG (joint liability group) model, poor center meeting attendance and high attrition continue to impact the sector. All these factors together have manifested into challenges on maintaining the collection levels. Being one of the large players, Spandana has not been immune to the challenges, Shalabh Saxena, CEO and Managing Director said.
 
Like Q2FY25, Q3FY25 was challenging as more borrowers turned delinquent and the company deliberately slowed down disbursement to drive portfolio quality and center meeting discipline. The Company provided a total of Rs 666 crore towards impairment costs leading to a Rs 440 crore reported loss for the quarter. A joint action by the industry through the implementation of guardrails will help improve discipline in the industry, the management said.
 
Number of initiatives for strengthening controls and processes with the aid of technology are being driven. The management team is taking all steps possible to ensure a return to normalcy in the next few quarters, it added.
 
Meanwhile, in December 2024, the domestic rating agencies CARE Ratings, India Ratings and Research (Ind-Ra) and ICRA revised their rating outlook on the company to 'Negative' to reflect the deterioration in Spandana's asset quality and the consequent pressure on its profitability in H1FY25 on a consolidated basis, largely on account of the elevated credit costs.
 
The rating agency expects further rise in delinquencies and consequent uptick in the credit costs and overall weak profitability of the company in the near-term.
 
CARE Ratings notes that the microfinance industry is currently experiencing significant stress, primarily due to increasing borrower indebtedness, as larger ticket sizes and multiple loans taken by low-income individuals have led to over-leverage and difficulties in repayment. Compounding this issue is the dilution of the JLG model, with declining centre attendance, high attrition rates among field staff and natural calamities that have significantly affected the collection efficiency of the MFIs.
 
The company witnessed a significant uptick in the portfolio delinquencies during H1FY25, largely on account of factors such as the impact of general elections in Q1FY25, political movements namely Karza Mukti Abhiyan in certain geographies, extreme adverse climatic conditions and increasing levels of borrower indebtedness, high field staff attrition and operational challenges due to the transition to weekly collections mode from a monthly mode in select geographies, Ind-Ra had said in rating rationale.

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First Published: Jan 24 2025 | 11:06 AM IST

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