Spandana Sphoorty Financial Limited (SPANDANA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q4 and FY'26 Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Venkatesh Krishnan, MD and CEO Spandana Sphoorty Financial for his opening remarks. Thank you, and over to you sir.

Welcome to this call, and it's a pleasure to be in your -- yet again. I'm sure some of you must have felt elated looking at the election results yesterday, while some of you may have gloomy. But one thing for sure that all of you should feel equally happy looking at our results for the last quarter. We managed to disburse around INR 500 crores a month during the last quarter, which was up against the 400 quarters per month that we used to disburse in Q3, which again was against the INR 300 crores in Q2 per month. Our AUM at INR 4,400 crores showed a 12% growth quarter-on-quarter and the share of new customers last quarter was about 25%, which comprised both new to credit as also to Spandana. And our overall stands at a little over INR 11.5 lakhs. Our ex bucket collection efficiency at 99.7% showed a similar trend across the 5 major states that we are present, which is Bihar, Karnataka, Andhra, Madhya Pradesh and Odisha. Our new book, which is the sourcing effective 1st of April 2025 stands at 80%. And we managed to collect nearly INR 65 crores last quarter from our pool of 90 plus customers. This was the second consecutive quarter where we managed to collect upwards of INR 65 odd crores, the lender overlap, which is Spandana plus 3 stood at about 4.8%, with 24% being only Spandana customers, 37% being Spandana plus 1 and 25% being Spandana plus 2. We are adequately capitalized -- capital adequacy at 35% and our cost of marginal borrowing at 12% for last quarter of 44% bank funding. Our OpEx came down to about INR 161 crores last quarter as compared to INR 195 crores. And we had for the first time after 6 quarters had a PAT of INR 5 crores against a loss of INR 95 crores in the previous. One of the things that I said in my last call, which also incidentally was my first call after joining Spandana in November that we were planning to move to a new LOS platform being developed by Perfios. It has started moving. And hopefully, we should have our first product, which is the individual loan product either before the end of this quarter or early next quarter. And the JLG migration might happen sometime in October, November times. So it's moving in the right direction. That should give us a lot of flexibility and agility in terms of the platform that we have. Our Micro LAP portfolio in our group company in the subsidiary stands at about INR 324 crores, which we definitely wish to grow in the times to come. That's a good portfolio that we have. One of the things which is rarely spoken about is the customer satisfaction score. We started focusing heavily on customer satisfaction and our score which 22% in Q3 has gone up to 71%. This is not very happy. We're aiming for a 95% score before the end of this quarter or early next quarter, wherein we want to ensure that all our customers will try to reach out to us and get the response on time. Incidentally, in the last quarter, there was only one case which was resolved outside of TAT of 21 days that RBS takes to know. Otherwise, all other customer complaints, queries were resolved well within the TAT. On the merger front, the process has begun. might take another 5, 6 months. We are working on it. So the CFL merger is definitely in due course. It's going to happen. We've been hearing about the El Nino and fertilizer issue. So a lot of queries people keep asking how is it going to impact the portfolio. Well, it is something which is seasonal, which is expected, anticipated, but we are trying to be cautious in terms of how we source new customers and especially focus more on ensuring that our collection efficiency, both in the x bucket as also in the one plus bucket, we have sharper focus so that as and when a situation does arise and which should be a pass in cloud, we are adequately prepared. With that, let me pass on the mic to my colleague, Ashish, who is the CFO, for him to give you further financial details. Thank you.

Good evening to all of you. Thanks for joining the call. I will cover the highlights, try to divide it into sections which are relevant. So let me cover some business drivers. AUM closing was INR 4,420 crores, which is higher compared to last quarter, INR 3,948 crores. This is after 8 quarters, we have seen an increase in the AUM and the AUM increase was 12% quarter-on-quarter. What is the -- better part of this is, 80% of the AUM now is constituted under the new guardrail, under the new giving us a collection efficiency of 99.7%. And this is not over a period of 2 months. This is of 8 months of seasoning with which we are looking at this kind of collection efficiency. So that's very heartening to see. On the portfolio quality, getting into some more details, x bucket collection efficiency has been seeing improvement for us month after month. For the quarter ending March 2026, it was at 99.7% against 99.3% for the previous quarter. In terms of our AUM, which is into 129 TDPD, that has come down now to 1.3% against the 2.5%, which we have seen in the previous quarter. The GNPA stood at 3.8% versus 4.2% in December. The NNPA is now down to 0.73% against 0.92% compared to the December quarter. We continue to maintain sufficiently provided in our books at greater than 80%. In terms of moving and giving you some highlights on borrowings and liquidity. We have borrowed INR 1,272 crores during the quarter. The total borrowings since the rights issue we have done is at INR 3,116 crores. This is since August 26, actually. From a liquidity standpoint, we have been maintaining very sufficient amount of liquidity as at March 31, 2026, it was at INR 1,438. Accordingly, the capital adequacy is also very strong. CAR stood at 35.9% with a net worth of INR 2,113 crores as of 31st of March. Giving you some financial highlights on financial performance for the Q4. Portfolio originated, like I've explained, is at 80% during the FY '26 with a net CE of 99.7%. Portfolio quality, given the AUM mix is shifting towards the newly originated portfolio has seen a lot of improvement. Yield for the quarter got a positive impact because of this movement into better portfolio mix. So it is at 22.8% compared to 22.4% in Q3. We have seen marginal cost of borrowings reduced during the quarter by 120 basis points. It is slightly over 12%. NIM contracted to 9.9% compared to 11.1%, largely on the impact of cost of borrowings, which we have seen in the previous quarter. Our PPOP has strengthened. We were at INR 39 crores for Q4 compared to INR 8 crores reported for Q3 FY '26. Like you have noticed and Venky explained, this quarter, we have reported INR 8 crores of PBT compared to the loss of INR 125 crores in the last quarter. With this, we will take a pause and open the floor for any questions or clarifications that you may require.

We will now begin the question and answer session. [Operator Instructions]. Our first question comes from the line of Shreepal Doshi from Equirus.

Congrats on getting back to the growth path on the loan book side. My first question was on the yield side and also on the cost of fund side. Given the tight liquidity in the market, how are you seeing the cost of fund moving for us, especially, I mean, while we have gone through our own journey as well. So how do you see that cost of fund moving in FY '27? And what are we sort of estimating that to shape up during the year? And on the yield side, what is our incremental yield for, let's say, 4Q? And what is our blended yield target also at book level for FY '27?

So I'll take that question, Shreepal. The cost of borrowings should be stacking up in the more around 12.5% on a blended basis, largely because we do see that there will be some impact on the cost of borrowings because of the liquidity crunch you are explaining. However, we believe that as our business kind of strengthens and improves, we should not see a large amount of escalation in the cost of borrowing. So overall for the year, we believe it should be below 12.5%. From a yield standpoint, the current pricing that we have on the loans is ranging between 23% to 26%. It depends on where the customer is in the vintage with us. My disbursement yield, if I have to give you that number, that is around 25.25%. However, it is presently at 22.8% largely because of there is a GNPA and there is a book which has flowed into GNPA or whatever. So it gets impacted. But as we progress, I believe we should inch up closer towards the ideal lead during FY '27.

Got it. The second question was on the customer base. So that has been shrinking for the last almost 6, 7 quarters. So what has been our new customer acquisition during 4Q? And where do we see that customer base ending for FY '27 end? Because I mean, while we have seen unique customer share increasing and also we are aligning ourselves with the guardrails requirement, when do we see this customer base growth coming back?

So if you look at -- and if you go back to our commentary, we have been explaining that the focus would be to add new customers to the Spandana base and improve the productivity at level and there is a headroom which is available, which we will kind of continue to chase. If you -- I would have noticed we have added about 1.2 lakh new borrowers during the against 63,000-odd in the last quarter. So there has been a clear focus on this aspect. I think by the next financial year-end, our goal is to add another 7 lakh new borrowers during the financial year, which should take us after the, let's say, dropouts or whatever to closer to 1.6 million borrowers from the present 1.1 million that we have. So I think that's largely the trend that is likely to play out.

Got it. Okay. That's very helpful. And sir, thirdly, last question on the growth side. So if you could highlight where do we see the FY '27 loan book shaping up in terms of the growth as well as what sort of profitability should we see, like we have seen PBT at least coming in green. So where -- when do we see that PAT also at FY '27 end level?

So last quarter, as I said, we averaged about INR 500 crores of disbursal and we want to retain at that level for at least the next 3, 4 months and then aim for INR 550 crores to about INR 600 crores as we progress and keep a sharper eye on the collection efficiency as well. So if all goes well, we should be closer to about INR 6,500 crores AUM by FY '27. And for profitability no guidance but we aim to be on the black.

And sir, this INR 6,500 crores disbursement, in terms of loan book, absolute like we are at closer to INR 4,400 crores. So with this INR 6,500 crores, where do we see the closing loan book or let's say, the loan growth for the full year?

I spoke of -- march '27, we are likely to exit at INR 6,500 crores of AUM.

Ok. Sorry, I thought that was -- sorry, my bad. Got it.

[Operator Instructions]. Our next question comes from the line of [indiscernible] an individual investor.

1 year back, the industry entire had faced the challenge. So I want to understand what kind of entity level measures and what kind of industry level measures have actually led to the new portfolio giving a collection yield of more than 99% x bucket.

So as far as the industry is concerned, guardrails issued by the SROs are being followed in total, effective 1st of April, which is also reflecting in how the industry book is behaving, whether it is 3 lakh or 2 lakh indeed. And more importantly, one of the SRO is also doing a third-party evaluation of various lenders to ensure that they are well within the guardrails. And any divergence is getting reported to the company for action and no response getting reported to the Board and in some cases, even getting reported to the regulator. As far as is Spandana is concerned, we got a little stringent the guardrail itself. So today, for instance, 98% of the disbursements that I did, the customers are regular. So I don't lend to customers who are 30 plus on the day of dispersal and ensuring that the focus remains tight on only getting to those customers who are exhibiting adequate behavior that we believe is very important. And of course, we all keep talking about sharper focus on recoveries, but we are also going one step forward, trying to do something which is difficult to do, but we have started doing it. For instance, if a customer were to not honor their installment on the demand date, the very next day, we are trying to reach out to the customer saying that you need to honor or we try and meet the customer and we are trying to ensure that this is -- as a process so that I know of what's happening on the ground on a daily basis in terms of recovery. That's -- which is more important because disbursals will keep happening to worry. So these 2 controls at our end should help us ensure that we build a very robust book as we go along in this journey.

So if I were to compare these current measures to maybe March '25, how is it broadly different? And then in terms of disbursement, as you said right now, if it's a 30-day plus customer, then you are providing disbursement to them. So was this a practice which was also followed in March '25 or what increments from March '25 were prior to the entire crisis were -- implemented?

Hi Pratush, this is Ashish this side. So see, the question is whether the industry was following the norm or not. We have adopted this sometime in January in terms of not disbursing to a 30-plus loan. However, if the customer was getting loans from, let's say, the industry at large, irrespective of their aging across the loans, then the behavior could not have been improved, which is what SROs have done stepped in and made it a full-blown guardrail, which has to be adopted by each and every lender in the space. And today, nobody is lending beyond 60 days. However, Spandana follows 30 days. So that's where we are right now.

Last question, sir, in terms of AI implementation, is there anything that has come up, for example, L&T Finance about implementing AI in customer cash flows and all of that. But there are a few other MFI companies which are not yet comfortable. So where are we among them?

So there are two, three areas where we are exploring. At this point in time, the larger energy is towards migration of our LOS platform to the current one to Perfios, which when implemented is definitely going to make a difference. MI automation is something that we are looking at. And second is the customer satisfaction, the call centers, in our call centers that we have, there is scope for doing an AI project, very simple one, but in our quest to reach to a 95% C, that's an area again we are looking at. Apart from that, there could or areas where we could explore some of those AI initiatives. But largely, this is going to be migration to the new platform.

Actually, I meant in terms of analyzing cash flow. Like for example, is it possible or like just generally asking that there are so many online UPI transfer companies Paytm et cetera, and they have data base of so many -- MSMEs, et cetera, is it possible to legally purchase data from them and kind of process that in the AI system and then decide whether lending to them is profitable or not, is that a practice for that's happening?

I think from a lending perspective, the kind of controls that we have is more than sufficient. We don't need to have any buying of data. So for instance, one of the other things that we are doing is bot calling, today when customers bounce or they are in the 90-plus, we are using a bot, which is quite advanced and that itself is helping us. And then, of course, over and above the bot call, we can always reach out the customers through the manual calling. But for the disbursal purposes, I don't think we need to buy anything from the marketplace. There are enough and more customers available in the marketplace today.

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

I have a fundamental question given whatever the industry has gone through in the last 2 years and what we observed was the JLG attend discipline had gone, there was a lot of and frontline attrition was very sky high 4% to 5% sometimes 6% to 7% a month. How do you see the borrower behavior and fundamental scalability of the microfinance model based on which Spandana has been built and there are many other companies. So obviously, a lot has gone in the last two years but since the end of FY '24 versus as you see the on ground situation today, is there fundamental changes that you need to make in terms of loan officers coverage for borrower, borrower selection? And what is the borrower behavior on the ground in terms of adhering to the best practices as laid out by the borrower or from the lenders?

The business has been evolving over the years. And what held good a couple of years ago is no longer valid and may not be valid 3 years down the line. And it's a very dynamic world. We did not talk about digital repayment 3 years ago. Today, for instance, at Spandana, my average is about 22%. Now if customers are paying me online and if I expect them to enter the meeting center just for the sake of attending, it's never happen. So there is always going to be a conflict between meeting center and digital repayment. What we need to think through is how do we engage with our customers, be in touch with them and money comes through online because we have to increase this. If we have to be more agile and we have to be more OpEx optimization, we can't be doing all these things of going meeting center, collecting cash. So we have to educate the customers. We have to ensure that the customers' money remains in the bank account because 100% of our customers have a bank account. That's for sure because we are disbursing the money to their accounts. So if they have a bank account, then why should they pay cash. So that's an education series we are keeping. We are also been discussing with the SROs to say that we have some sort of a target aim to take it to about 50% to ensure that as a industry we stand together. So meeting center will undergo a change. The way we have been assessing our customers will also undergo a change. For instance, we've been talking about using data analytics to say or data science to understand what sort of a customer we need to lend to. Otherwise, it becomes very simple. This is the age group, hardly any income that we are talking of, group, so on and so forth. Is there some smart analysis we could do to say that this set of borrowers tend to repay much better than the others. So that over the next 3, 4 months, we're going to work on different data science to understand how does it fit into our existing database and which will help us decide what sort of customers we need to source going forward or which market for that matter or for that matter, the different markets may have different policies and processes.

So are you saying that the joint liability group sort of no longer -- it's actually coming out to individual borrower behavior and how they -- how you are able to engage with them and how they hopefully repay digitally.

It was always like this. It is now getting a little more pronounced being talked about. Never for once, 10 years ago, when I was handling this, I've seen customers, the group repaying 1 or 2 installments of a defaulted borrower. I've never seen a group that even 10 years ago that said, okay, for the next 18 months or 24 months, we will honor just because this lady is migrated or she's not in a position to repay. So it was never there. But it starts getting more pronounced, more being talked about. Yes, still are coming together. They will help you to say that this lady is migrated to this village, I know her contract number. So those things remain. The fabric remains. But since the ability of one member or other members to pay for the defaulting number also beyond reach today because the EMIs have gone up because of the ticket prices. What used to be INR 400, INR 500 EMI explains about INR 1,800, INR 2,000. So if a lady has not paid for 3 installments and putting different institutions, expecting others to pay is highly improbable.

Sure. Fair enough. And is there further -- coming back to Spandana's operations, two more questions I have. Is there further OpEx optimization that is possible in your operations? You are from INR 195 crores last quarter, it is down to INR 160-odd crores. But obviously, this is a distributed borrower base that you have. So we cannot really look at loan officer sort of efficiency from a loan under management perspective but given the size and scale and the disbursement that you are targeting, what's the optimal OpEx that you would want to work with on an absolute number basis and then 2 years, 3 years down the line as a percentage of AUM basis?

In the medium term, it should come down to about 7%, 8% OpEx to AUM. And in the near term, then 160 comes down, that's what we are aiming for. I can't say no. But definitely, there is a room. But I need to ensure that I don't cut corners. These are optimization in the normal course without compromising on efficiency and growth and other factors, there is room, which we will also ensure that it will be seeing in the quarters to come.

So in such time you reach almost INR 8,000 crores AUM as I'm just taking off a 7% to 8% OpEx would mean INR 660 crores, INR 650-odd crores of OpEx annually. So the system is today for INR 8,000 crores AUM, where in such time you would have to increase your OpEx and maybe try to optimize from where you are today downwards. Is that a fair assumption?

OpEx up to INR 8,000 crores OpEx in terms of some people in the front line, I may have hired. Other OpEx, I don't need to. For instance, head office is adequately capacitized. I don't need to open branches because I've got 1,250 branches in a steady state. And even if I take a INR 10 crore assumption, I'm well equipped for INR 12,500 crores of AUM. But I may accelerate more headcount in the front line in my quest to increase my volumes or reach certain numbers much before time. So otherwise, I don't need to add on to any fixed cost at the head office levels.

And finally, on the new borrower acquisition, either new to credit or new Spandana or existing, how is the rejection rates now? It used to be as high as 70%, 80% till our 2 quarters back, so is the overall landscape getting better that you are able to source better customers who are able to pass the filers? So what has changed from your working style and also from a macro environment perspective that keep the quality of the book as good be able to accelerate your disbursement?

Continue to be in the range of 50% to 65%, and it may remain so for a while. What will happen is some of these customers who, for whatever reasons, could not pay defaulted with no adverse intent because just the capacity may come back into the mainstream in about 2, 3 years like it happens in the stock market as well. So like, for instance, customers who defaulted during COVID times, many of them have got regularized, and they are even paying to most of the institutions. So as I see it, the market has got a lot of customers. Of course, most of the players are already focusing on these customers who are still availing of finance through in the unorganized sector. But we'll also have the crore, 1.5 crore customers who went out of the system in recent times. Many of them will come back at a later point in time through some behavior, which gives us the confidence that we can again look at them.

And given your rejection rates are still 60%, 65%, are you able to source more with the same frontline loan officer network that you have?

So last quarter, as I said, our sourcing of new customers was 45%, 10% was NTC, another 35% was NTS. NTC requires a little more effort. So that's what we are now promoting our people to say let's focus on those customers, what are the different ways of acquiring new to credit customers. But 50%, 55% of the customers are actually new in the portfolio.

And on the ticket side, ticket size-wise, what changes have you made? What you realize is cycle 3 or cycle 4 borrowers or borrowers who have been there with you for 3, 4 years and have been good in their prepayment behavior, certainly you should play with them. I'm just making a very generalized statement of what have been the learnings and what has been implemented born out of those payments?

It's a very odd statement. As we go along, in our cycle 6 or 7 cycle, we give as high as INR 170,000 but that's a very small share of our overall portfolio, maybe 2%, 3%, 4%. But average ticket size continues to be INR 60,000. But yes, as we go along, when you acquire new customers, new to credit is always going to INR 50,000, INR 60,000. If you acquire new to Spandana or existing customers, the ticket prices will go up. So it's always going to be hovering between INR 60,000 and INR 80,000, INR 85,000.

Our next question comes from the line of [indiscernible].

Sir, I wanted to ask on the individual loan portfolio under Criss Financial. How are we doing on the, sir?

So Criss Financial has 2 portfolio. One is individual loans and the other is MicroLAP.MicroLAP, I said is about 332. This will be about 260-odd. But we are launching a different individual loans in the month of June or July, which is one of the underwritten products wherein there will be a personal visit by a credit officer, questions by us plan being collected, 100% repayment so on and so forth. So once that is launched, we will do a pilot in certain states or certain all branches within Spandana, we are setting certain milestones. Once those milestones are reached, we will give it to Criss as well. And they will then start sourcing individual loans as per the new criteria.

Understood. And what about the existing GNPAs in that book?