Spandana Sphoorty slips 6% in 2 days, nears record low on growth concerns

In the past six months, the market price of Spandana Sphoorty has tanked 60 per cent, as compared to the 10 per cent decline in the BSE Sensex.

Shares of Spandana Sphoorty Financial (SSFL) were down 3.5 per cent at ₹241 on the BSE in Wednesday’s intra-day trade, falling 6 per cent in two trading days. The stock price of the microfinance institution (MFI) is quoting close to its record low of ₹240.05 touched on March 17, 2025.

 

In the past six months, the market price of SSFL tanked 60 per cent, as compared to 10 per cent decline in the BSE Sensex. The underperformance of SSFL is due to weak earnings; the company reported net losses of ₹601 crore for the April to December 2024 period of financial year 2024-25 (9MFY25), amidst the ongoing stress in the microfinance sector.

 

 

SSFL’s performance in terms of profitability and asset quality has been impacted during 9M FY2025, on account of various issues including over-indebtedness of borrowers, dilution of credit discipline, elevation at field level attrition, etc. 

 

The entity has witnessed a contraction in its scale due to slowdown of disbursements, coupled with write off done by the entity during 9MFY2025. It reported consolidated assets under management (AUM) of ₹8,936 crore as on December 31, 2024, down from ₹11,973 crore in March 2024.

 

Owing to the significant slippages during 9MFY25, there has been a sharp uptick in credit costs (as a percentage of average total assets) of the company from 2.32 per cent in FY24 to 16.08 per cent (annualised) in 9MFY2025 and a deterioration in its gross stage 3 (GS3) assets to 5.25 per cent and net stage 3 (NS3) assets to 1.11 per cent as on December 31, 2024, compared to GS3 of 1.68 per cent and NS3 of 0.34 per cent as on March 31, 2024.

 

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, the management said.

 

CARE Ratings expects the headwinds to continue and its profitability and asset quality to remain muted in the near-term. Furthermore, the entity has witnessed a contraction in its scale due to a slowdown of disbursements, coupled with write off done by the entity during 9MFY2025. While its growth is expected to remain moderate in the near-term, the proposed capital raise will help in improving loss absorbing cushion for the entity, the rating agency said in its rationale.

 

Going forward, CARE Ratings anticipates a moderation in loan book growth considering the ongoing MFI stress. Additionally, with rising credit costs expected to exert further pressure on profitability, the Company’s ability to maintain its financial flexibility in the current environment will remain a key rating monitorable.

 

As these challenges are likely to continue over the majority of Q42025 as well, the company's asset quality and profitability are expected to remain vulnerable over the near- to medium-term. The pace and magnitude at which asset quality and overall profitability restore to normalcy, will remain a key monitorable and a rating sensitivity factor, according to CRISIL Ratings.

 

As a lender to the economically weaker sections of the population with below-average credit risk profiles and lack of access to formal credit, SSFL's asset quality will always remain susceptible to socio-economic disruptions that have a high bearing on the cash-flows of its targeted borrower segment. Typical borrowers are cattle owners, vegetable vendors, tailors, tea shops, provision stores and small fabrication units. The income flow of these households could be volatile and dependent on the local economy, the ratings agency said.

 

According to India Ratings and Research (Ind-Ra), SSFL witnessed a significant uptick in portfolio delinquencies during 9MFY25, 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 (the transition has been paused at present due to headwinds in the sector). 

 

The uncertainties in Karnataka with respect to any restrictions in the micro lending operations and its incremental impact on SSFL’s collections and asset quality over the near-term will be closely monitored by the agency. Karnataka comprised 10.25 per cent of Spandana’s assets under management (AUM) as of December 2024, the ratings agency said.

 

SSFL’s asset quality performance is likely to continue to face near-term headwinds in view of the stress in the microfinance segment, new regional developments that can impact MFI operations in general and further tightening of the lending norms as guided by the MFI-self regulatory organisation (MFI-SRO). Consequently, disbursements are expected to remain muted, given the focus on bringing the asset quality under control, ICRA said in the rating rationale.