Spandana Sphoorty Financial Limited (SPANDANA.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Spandana Sphoorty Financial Limited Q2 and H1 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinion and expectation of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Ashish Damani, Interim CEO, President and CFO. Thank you, and over to you, sir.

Good evening, everyone. Thank you for taking time out and joining us on this call. Let me just first greet you. Wish you a very happy Diwali, Dasara seasons greeting. We wish you a good new year as well. Let me give you some highlights on the results. We have already put up the presentation, and I believe most of you would have got a chance to go through the deck. And if you have done so, I'm sure you would have noticed improvements in all the lead parameters. Let me start by highlighting a few trends that we have been witnessing and we are very excited about. Concentrated industry-wide efforts have been made and have started yielding results. One of the lead indicators is the overlevered borrowers across the industry has been coming down, that number. Our X-bucket collection efficiency, if you would have noticed, has been behaving very strongly and has been improving. We have reported 98.7% as of September as against 97.9%, which we had in June last quarter. X-bucket collection efficiency for October as well has been strong and is at around 98.5%. Obviously, it's a slight dip compared to the September month, but that is owing to less number of working days, festive season, rains and some floods which we are seeing in some parts of the country. What is more heartening is that the improvement has been seen across the major geographies, including Karnataka, which was struggling in the past, now is in line with the national average. Over 60% of our branches have moved into a much better zone with more than 99% collection efficiency. Our disbursement has also gained momentum. If you look at the numbers month-on-month, they have been shaping up fine, and this has come with improvement in the portfolio quality as well. Disbursement for quarter 2 was INR 934 crores as against INR 280 crores in quarter 1. October '25 disbursement has been a touch lower than September, again, the reason being same, less number of working days and festivities in the month kind of had lower disbursement compared to. But yes, we are very confident that we'll pick up the pace in the coming months. We have seen consistent improvement in the productivity as well. If you would have noticed, we have kind of given this data. Per loan officer, the amount disbursed over last few months has been improving, and the information has been shared on Slide 6. There have been multiple levers which have aided the improvement in the productivity, starting with some technology initiatives like we have moved the credit bureau check upfront, new customer enrollment -- for new customer enrollment and higher share of disbursements from the weekly branches, which obviously have been performing better than the monthly branches in terms of collection efficiencies. Our existing customer franchise offers us almost close to about INR 6,000 crores of disbursement opportunity. This has been detailed again in the presentation, where you can see that 10 lakh customers are eligible under the stricter internal guidelines on the approval process that we have put. And 76% of these customers have only 2 relationships at best and almost all of them have less than 1 lakh loan amount as outstanding. So there is a big headroom available for us to disburse in these customers. Loans disbursed in FY '26 has been at 28% of our balance sheet for September. And I think by end of October, this should be almost 37% of the balance sheet. This portfolio has been performing very strongly for us. If you would have noticed, the delinquent book in this portfolio is just 0.1%. 72% of these customers have again less than 2 lender relationship at the time of disbursement. Our internal rule engine filters out existing customers who have over 30 dpd and new customers who have even 1 dpd before we lend to such customers. And these are rejected. Only 1.8% of our customers at the time of lending were in 1 to 30 dpd and rest of all customers were in current bucket as we have shortlisted those customers for lending. We continue to drive a strong momentum on the recoveries with multiple focused initiatives. So far in 2025, we have issued 90,000 demand notices and over 3.3 lakh legal notices. We have also initiated Lok Adalat proceedings against 8,600 plus customers in 4 states. These measures have started yielding results, showing us a lot of promise. We've been able to recover INR 7.7 crores so far through these initiatives. And please bear in mind that these initiatives were initiated sometime around August, which means this will show a better trajectory, better numbers as we go forward into the quarter. Various digital channels were also introduced to engage and improve on the digital collections that we get. QR code, SMS, BBPS payments have been adopted so that the customers can make digital payments without any further visits from our field force. Lot of efforts are being placed in optimizing operations and cost structure. During H1 FY '26, we have seen rationalization in the size of operations. 101 branches have been merged or closed in H1 FY '26. We expect further improvements in our operating cost structure in the coming quarters. While all the so far mentioned positive trends continue to play out, we maintain a prudent financial stance. 21% of our assets are in form of cash and bank balances gives us flexibility to deploy funds at short notice. The successful closure of rights issue has further improved the company's capital position with CRAR at 47% at the end of September. Our net worth of INR 2,227 crores and gearing of 1.5x provides sufficient headroom for future growth of the organization. We have also been able to raise debt funding of INR 598 crores over the last 2 months. This stems the confidence that as we go along, we will be able to finance all our future lending plans. Let me move to the results and give you the business updates. Let me start with business drivers. We are continuously evaluating our operational environment and taking measured steps to build a quality portfolio. As explained earlier, the new books performance has given us the confidence and, hence, we have stepped up the disbursements. During Q2 FY '26, like I've explained earlier, INR 934 crores was disbursed as against INR 280 crores in the quarter 1. October has been slightly lower, but we are very confident that we will be doing higher numbers as we go into November and December. AUM at the end of quarter 2 was at INR 4,088 crores. AUM is an outcome of disbursement, as we all understand. And as we step up disbursement, we should be able to record AUM growth from here on. Portfolio quality. Like I've explained earlier, top 5 states with the AUM have shown improving trends in the X-bucket collection efficiency over the months between July and September. We continue to maintain provisioning for the book at 80%. GNPA at the end of the quarter was 5.62%. However, the stand-alone number stood up at 4.97%. Likewise, our NNPA for stand-alone was 0.97%, and NNPA for the quarter was 1.17% at an enterprise level. Borrowings and liquidity. We started the quarter with a comfortable liquidity position of INR 1,731 crores. Apart from the regular collections, external borrowing of INR 160 crores and INR 200 crores raised during the quarter through the partly paid rights issue supported the disbursement. We had about INR 1,179 crores of liquidity at the end of quarter 2, representing 21% of the total assets. As of October, we still have INR 1,270 crores in cash and bank balances. Let me give you some highlights on the financial performance. The net interest income for the quarter was INR 91 crores over INR 341 crores reported for Q2 of last year. Lower NII was primarily due to decline in AUM and the interest reversals due to the flows into GNPA bucket. PPOP for the quarter was negative at INR 40 crores. With disbursements improving and continued rationalization of our operations and costs, we expect to turn PPOP positive in the coming quarters. Yield on the portfolio improved to 19.6% as against 19.4% reported in quarter 1 FY '26. Improvement in yield is reflected positively on our NIM as well for the quarter, which was at 8.4% as against 8.2% reported in quarter 1. We expect the yield and NIM to start improving from here as a proportion of new portfolio continues to grow in the AUM. The company reported a net loss of INR 249 crores for the quarter on account of provisions and higher OpEx relative to the size of operations at this point in time. Additional credit cost of INR 86 crores was recognized in second quarter due to technical write-off that we have done. If we would have excluded the impairment cost would have been down to INR 172 crores. As indicated in our last earnings call, we see FY '26 as a year of rebuilding. The loan book built in FY '26 under the new credit rules gives us sufficient confidence for the way forward. We expect to maintain a steady pace of disbursement throughout the year while constantly keeping an eye on the behavior of the portfolio. The recent macros and bountiful monsoon also gives us sufficient indication of the quality and the trend of credit demand in the rural India. With this, I'd like to thank you again for taking time out to join this call. We have the entire management team of Spandana thanking you for your consistent feedback. And now I request the operator to open the floor for any questions that we may have.

[Operator Instructions] Our first question comes from the line of [ S.K. Devna ] from [ S.K. ].

I would like to understand that you have taken a lot of NCDs. How are you making the payments of that when you are suffering from loss? And what are your plans to improve the performance in the next 1 year period?

Thank you, [ Mr. Devna ], for the question. So like we have explained, the focus is on pushing the disbursements, regrow the balance sheet and for which we have all the required building blocks. We have worked on the capital side. We have worked on the people side. We have worked on also origination improvements which are required. And this should definitely start improving the upcoming quarters in terms of performance. On the NCD side, we are very comfortable. All our liabilities are serviced very comfortably. The company maintains very, very healthy liquidity. We always carry roughly about 2.5 to 3x of whatever the internal thresholds on the liquidity that's being paid out.

Our next question comes from the line of Aviral Jain from Siguler Guff.

I have two questions. One is, what's your expectations on disbursement pickup? What's the quantum that we can expect going forward for the balance 2 months of Q3 and Q4? And given the behavior of the book, given expected collection efficiency at 98.5%, what's the expectation of the credit cost for the rest of the year, Q3 and Q4, respectively?

Aviral, thanks for the questions. The way it seems like is the disbursement is picking up. The industry is facing a challenge on the new customer acquisition. The rejection rates have been higher. However, I think with our focus on fixing all the, relatively speaking, challenges that we've been facing on the IT or on the operations side, we are very confident that we should start delivering over INR 500 crores in the current quarter. And the next quarter, our run rate should be something around INR 700-plus crores on a monthly basis for the next quarter. In terms of credit costs, I think things have started improving. Like you would have noticed, roughly about 2.5%, 3% was the flow rate from the current bucket earlier. It's down to 1.5%. And again, we are confident that as the percentage of new book improves in the balance sheet, they should start sustaining over 99%, which would mean that your flows into the subsequent buckets should slow down significantly. And that should have a very positive bearing on the overall credit cost that we have. I think currently, we have about INR 150 crores which is there in the 30 to 90 bucket. So I'm not expecting flows to be anything more than that during the quarter into the bucket compared to the INR 360 crores of flows that we have seen in the last quarter.

This is forward flows to INR 90 crores you're saying, right, Ashish?

That's right. That's right.

Our next question comes from the line of Mayank Mistry from JM Financial.

Sir, question is mainly on the collection efficiency in Bihar state. So I was seeing the 20 bps as we -- there is some improvement in the collection efficiency I was seeing. But in Bihar, there is a 10 bps decline in the collection efficiency. And I would like to know how is this panning out even in October because given that the elections are nearing, how would we see this going forward, mainly your experience from the other states, if that could help. And secondly, on the plus 3 lender base, considering that the write-offs have been really elevated over the last few quarters, I would like to know from this, is it mainly coming in from this 17% book? And I mean, the 23%, that has been going on from February onwards. So should we see the write-off continuing in maybe next quarter? Or how should we look at it? yes. These are my three questions.

So on the first question, Bihar has been performing strongly for us. It has been at 98.8% like we presented. And I think in October also, we have a similar number for Bihar. So while I understand there has been upcoming elections, our approach has been measured not just in Bihar but across the country in terms of disbursements, which is what we're controlling right now. And the outcome so far has been positive, Mayank. In terms of 3 lenders and the performance there, yes, the customers who have more number of loans have shown higher delinquencies across the buckets. However, as we start taking measures on increasing the new customers from the buckets where either they have only 1 loan or 2 loans at best, this number should keep going down for Spandana like it has gone down in this quarter. And I think the positive rub-off will be seen across the buckets in terms of the collection efficiency.

Sir, can you give me a number, of the 17%, how much would be in Stage 2 or Stage 3? I mean, any color on this book?

I don't have that number handy right now. But Mayank, we can connect and we'll definitely share those numbers with you.

Okay. Sure, sir. And how do you see the growth in second half? I mean, you say that the disbursements would grow. We understand. But given that now, should we see the positive growth from Q3 onwards on a sequential basis?

So there should be improvement in the AUM for sure. However, for the full year compared to last year, it should be more flattish is what I feel.

Our next question comes from the line of Meghna Luthra from Incred Equities.

I had a couple of questions. Firstly, sir, can you explain a little on the INR 86 crores technical provisions? That is not a part of the write-offs, right?

Sorry, I'm just trying to understand your question, Meghna. Can you just ask that once again, please?

So the INR 86 crores of technical additional cost that is recognized that you mentioned as a technical write-off. That is a part of the INR 418 crores, right?

Yes, that's right. It is just a nuance that we wanted to highlight, that since we have done the write-offs, we had to take this additional 20%. If you would have left it in the GNPA, probably that cost would have not been incurred right now. We have been practicing a higher write-offs presently and which led to this incremental cost of INR 86 crores.

Okay. Because I wasn't sure how do I differentiate this from the INR 418 crores.

No, no, it's a subset.

It's a subset. Okay. Understood. So it is probably not overdue to be written off and then you did new prudential write-off.

No, it's a technical -- so when we do this, we are expecting the field to continue to make all the efforts in a regular course of business.

Okay, okay. And a couple of more questions. On the slide with the breakup of our customers, Slide 7, there is a breakup of eligible customers at 10 lakh, right, which is 43%. And 7% is serviced. So is it fair to understand that this 43% is not serviced and these are ex customers?

A part of them will be ex customers, roughly about 2 lakhs. But others are active loans with me. And when we do the scrub, they are all eligible as per my internal filters.

Okay. So what proportion of this entire -- only 2 lakhs, you mean to say, will be ex customers which are not on the books, right?

That's right.

Okay. Because the serviced in H1, you mean to say there were fresh disbursals to 7% in H1.

Yes, yes. So last quarter, we have shown 50% customer base which was all eligible. I think of that, 7% were given new loans during H1. And the rest, we still have about 43 lakhs where we can lend as per our internal rules.

Okay. Understood. So it would be fair to also understand that the borrower count can further go down by -- do you see like a number in the second half?

I think it should go up as we have started pushing our customer acquisition. The member acquisition should push a higher customer base. And over time, you should start seeing this number constantly improving.

So that can start happening from Q3 itself?

So I think if you look at that Slide 6 we would have given, the new customer enrollment, we have 22% of the loans were given to the new customers. I think in Q1, it was 15%. And this quarter it was 22%. This number will be pushed further is what I was trying to explain.

Okay, okay. Understood. And sir, lastly, I know this is far sighted, but do you see -- can you indicate a quarter where you can see operating profit?

Yes. So this will be -- definitely, we should start seeing in coming quarters. Like we have explained, as the pressure on the GNPA eases up, which is what we are likely to see next quarter, we should start seeing first PPOP and then also operating profits.

Got it, got it. And lastly, sir, which state right now is -- amongst all states is still yet to catch up with the collection efficiency being, say, in the 98%, 99% or above percentage? Sort of which state is lagging behind?

So yes, there is not much of a lag behind now. Most of the states have come up to speed in terms of the national average, very close to the national average. But if you were to ask me, Andhra Pradesh, for example, has seen some floods and some other challenges. So more improvement is what we are expecting there.

Okay, sir. And on the covenants part, I guess there would not be any further breaches or anything left, right, on any of the borrowings?

I think we have detailed it out. I think we are very comfortable. I think as things start improving, these challenges for the organization should start subsiding.

Our next question comes from the line of [ Rahul Mishra ] from [ RTL Investment ].

First, any deliberation and thoughts on going down the CGFMU route?

[ Rahul ], thanks for the question. Yes, we have been deliberating this and internally have started looking at it. As we understand, the CGFMU is favorable when you have to assume that your overall, let's say, loss rate on a pool of loans is beyond 5%. That's when it is effective. However, we are deliberating and positively conclude on this one way or the other in the coming quarter.

Okay. Because I guess, more than the cost, and we understand that probably now may not be the right time because we're just starting to recover. But just from a longer-term, more predictable credit cost, that is something which at least most of the players seem to be going down, whether they are small finance banks or specialist MFIs. So I just wanted to check that. Secondly, I know you've been asked about this quarter and next quarter. But let's say F '26 has been what F '26 has been. Looking out at F '27, what do you think is both AUM growth and credit costs that would make you feel satisfied?

Yes. So I can give you only a guesstimate at this point in time, Rahul. But I think what we can achieve is a 20% kind of a growth rate. And the credit cost in my mind should not be over 3%. It should be more like a 2.5% to 3% kind of a credit cost. Things have started looking up on the X-bucket -- whether I call it X-bucket or whether when I look at the new portfolio under the new guardrails or the new credit filters that we have put, has been behaving very strongly at 99.9% even for October for that matter. Gives us a lot of confidence that the part 2 recovery in the microfinance asset class has kicked off. And from here on, it should only improve is how I kind of look at it.

Understood. And finally, any new senior hires and any update on the MD CEO thing?

So senior hires, yes, we have hired earlier Head of FRM, who's moved into the CRO role. So that's one hire that we have done. MD CEO, I think it's a UPSI. But we should positively be making a formal announcement to the exchanges within the next 30 days.

Our next question comes from the line of Ashlesh Sonje from Kotak Securities.

Sir, a few questions. Firstly, in your book, because of these MFIN guardrails, how are you looking at the trends on borrower rejection rates now? Is that trend gradually declining month after month?

Ashlesh, so no, the trend continues to be high. If I have to split it out between existing and new member acquisition that we do, the new member acquisition is hovering around 80% in terms of rejection. And the existing also, we are seeing close to about 65% or thereabouts in terms of rejection. So yes, it is high. Having said that, for us, a part of this is also because of a lot of internal filters that we have put, like as explained. In the new customer acquisition, we are very, very stringent. We are looking at 0 delinquency, One day delinquency is also knocked off. We are very, very stringent even for the existing customers, and we are pegging at 30 days although the SRO allows you to go up to 60 days in terms of delinquency. So these matrices also have a role to play. But yes, I think we are comfortable given the portfolio quality being top class right now.

Okay. And you would have any sense when these rejection rates could normalize? Or is it too difficult to predict right now?

Yes, it is difficult. But I think the way we are looking at it is we just need to step up the new customer acquisition on a continuous basis, go into geographies where there are still white patches or green patches and make effort to add -- there is a clear headroom there in terms of improving productivity at a low level, and that's a focus area for us.

Understood. Sir, and secondly, you mentioned that the October collection level is a bit relatively muted as compared to September because of festive and some floods. Can you just list out which are the states where there has been a flood impact? And if you have seen anything specific in the state of MP.

So floods, like I told you, Andhra Pradesh has seen pockets where there was flooding. We've seen pockets in Bihar, parts of Orissa and West Bengal are the states. Sorry, your second part of the question was MP?

Yes, sir.

I'm sorry, what was the question in MP? What...

Yes, if you have seen anything challenging in MP, either floods or something else.

Nothing specific we have seen. In fact, I think I'm not sure if I've covered that, but MP in terms of collection efficiency has been strong. We continue to see 98.9% kind of collection efficiency there. And disbursement also has been reasonable. In fact, in our case, MP, I think, as a percentage has stepped up from 12-odd percent to 14% now of the total balance sheet.

Understood. Sir, and lastly, now that the guardrails have had the desired effect of curtailing leverage in the industry, is there any discussion at the industry level or at MFIN level to loosen the guardrails from here? Because the industry seems to be in a better position today.

Again, too early. I think the industry is still evaluating the impact. Given the positive impact on the portfolio quality, maybe as an industry, we would probably wait a little more for us to analyze what's the negative impact on, let's say, the growth or other areas and then recalibrate. Having said that, are there discussions? Yes, there have been deliberations. Nothing concrete to my knowledge has been actioned or has been initiated.

[Operator Instructions] Our next question comes from the line of Vatsal Parag Shah from Knightstone Capital Management.

Sir, can you just quantify the slippages for this quarter and last quarter?

Yes, sure, Vatsal. We'll give you the numbers. Just give us a moment. So it was INR 552 crores for the quarter 1 and INR 396 crores for quarter 2.

Okay. Got it. And secondly, can you mention what is going on in the Criss Financial AUM? So like I think in last year Q4, it was around INR 230 crores. And hence, we have not received any update on that, sir.

Yes, sure. So I have my colleague who manages the Criss Financial business, Sushanta Tripathy. I'll just ask him to update you on what's going on.

Yes. This is Sushanta. I take care of Criss Financial. So Criss Financial, as you know, we have unsecured individual loan and we have the LAP book, Micro LAP. So put together, we have a portfolio of INR 671 crores business in total. So unsecured individual loans is the rural segment: AP, Telangana, that we are operating. And the LAP, we have another 6 states we are operating: Rajasthan, MP, Karnataka, Tamil Nadu and AP, Telangana. So operator, there is some noise, yes. So unsecured individual loan, there is the AP, Telangana. As we mentioned, there is a flood, attrition and other stress are there. So the portfolio quality is not gearing in line with the other segment like Micro LAP. Micro LAP, whatever we have launched, INR 290 crore book, that is going perfectly fine. We have very, very less slippages there, less than 1% NPA kind of thing. And that we plan to grow a lot. The journey in Criss Financial is currently, we have the 39% of the portfolio in secured which was, a year back, 13% portfolio in secured in Criss Financial. That has become 39%, 40%. We plan to take it to upwards of 50%, 55% by year-end. So going forward, the major focus in Criss Financial will be the secured part, lending to the Micro LAP segment and reduce the concentration in the unsecured element. So that's the journey that we envisage. We have a good branch network in the Micro LAP. The 100 branches are there. Those have started yielding results in terms of the productivity. And we'll grow that book very, very strong in the coming quarters.

Got it. That was clear. Just one thing. The overall book was around INR 670 crores, and out of that, Micro LAP was around INR 300 crores, right?

Yes, yes. Correct, correct.

So the overall book will grow? Or you're going to degrow the unsecured part?

No, so the unsecured part, we will grow. I'm not saying -- the proportion of the LAP book will grow. But among that, the unsecured part will remain stable or little marginal growth will be there. The journey 3 years down the, we tend to have 70-30 kind of proportion in the entire book.

So in the immediate run, Vatsal, the way we look at it is probably individual book will also grow and LAP will also grow. Proportionately, LAP will grow more. And over time, like Sushanta is saying, the strategy is to keep pushing the secured business and change the balance sheet to a 70-30 kind of ratio.

Got it. And have you taken any price hikes in the group loan business?

Yes. So across the group, we have seen increase in the interest rates. For Criss, we are at 26% in terms of the interest rate and 1.5% as processing fee.

And any price hikes in the microfinance business, the JLG model?

Yes. We've highlighted on Page 4, if you see now our pricing will be from 23% to 26% depending upon the aging or the vintage of the client with Spandana. And 1.5% is the processing fee, which used to be at 1%.

Ladies and gentlemen, due to the time constraint, that was the last question for today. I now hand the conference over to Mr. Ashish Damani for the closing comments.

Thank you once again, everyone, for joining the call. Like always, we are open to feedback or any further clarification questions which we could not take today. The team and all of us here are available for any further clarification. Thank you all, and good day to all of you. Thank you very much.

Thank you, sir. On behalf of Spandana Sphoorty Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.