Spandana Sphoorty: Buy Spandana Sphoorty, target price Rs 840: ICICI Securities

Spandana Sphoorty Financial Ltd, incorporated in the year 2003, is a Mid Cap company with a market cap of Rs 3649.90 Crore, operating in NBFC sector.

Spandana Sphoorty Financial’s key Products/Revenue Segments include Income From Financial Services for the year ending 31-Mar-2020.

Investment Rationale

Company’s collections (excluding arrears) fell to 92 per cent in April’21 and 82 per cent in May’21 from 96 per cent in March’21. While lower collections in near-term due to covid second wave pose risk to asset quality (expect credit loss of ~2-3 per cent in FY22), ICICI Securities believe, Spandana’s cost-efficient business model will help it gain industry-leading profitability. Further, the company’s diversified operations with ~78 per cent districts, having less than 0.5 per cent exposure per district, provisioning buffer at Rs 0.8 billion (~1 per cent of on-balance sheet loans) and healthy capital position (CAR 40 per cent) will ensure that micro finance company will see normalcy quicker than its peers, ICICI Sec added.

ICICI Securities maintains buy with a revised (lower) target price of Rs 840 (earlier Rs 900) as it cut earnings estimate by 21 per cent in FY22 to factor in higher credit cost due to a sharp decline in collections in April’21 & May’21.

Financials

For the quarter ended 31-03-2021, the company has reported a Consolidated Total Income of Rs 480.29 Crore, up 39.52 per cent from last quarter Total Income of Rs 344.26 Crore and up 9.21 per cent from last year same quarter Total Income of Rs 439.77 Crore. Company has reported net profit after tax of Rs 49.27 Crore in latest quarter.

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