 "Spandana Sphoorty nears record low; tanks 73% in CY24 on growth concerns")
Spandana Sphoorty Financial (SSFL) shares hit a multi-year low of Rs 309, declining 3 per cent on the BSE in Tuesday’s intra-day trade on negative outlook due to a deterioration in the company's asset quality and profitability in H1FY2025 and the expected weak overall performance expected in the near-term. The stock of the microfinance institutions (MFI) is trading close to its all-time low of Rs 288.75 that it touched on June 20, 2022.
Thus far in the calendar year 2024 (CY24), SSFL has underperformed the market by falling 73 per cent, as compared to 9 per cent rise in the BSE Sensex. It had hit a record high of Rs 1,400 on November 8, 2019. The company offers income generating loans under the joint liability group (JLG) model, predominantly to women from low-income households in rural areas.
In the past three months, Spandana Sphoorty's share price has tanked 48 per cent as the company’s collections were significantly impacted, resulting in a deterioration in its consolidated gross stage 3 to 5.3 per cent as of September 2024 (Q2FY25) from 1.7 per cent as of March 2024 (Q4FY24), while its 30+ days past due (dpd) delinquencies widened to 10.8 per cent from 3.0 per cent during this period (on AUM basis).
The company’s management, while announcing its Q2FY25 results, said that the microfinance sector has been facing multiple headwinds over the past two quarters. The operations that were initially impacted by long drawn elections and an intense heat wave during the summer of 2024, were further disrupted by heavy rainfall and floods in certain states during the months of July to September 2024. A number of other issues like higher-than-normal attrition levels, localised drives like Karza Mukti Abhiyan and increasing leverage of borrowers, all had an impact on the sector.
The management further said that its team has taken up various measures to address the challenges, including increasing bench strength, strengthening branch level controls, introducing technology and people interventions, refining credit policy and focusing on softer aspects. With improvement in the operating environment and the various initiatives undertaken, the management expects the situation to normalise in the coming quarters.
On December 5, SSPL informed the stock exchanges that ICRA has reaffirmed its rating for the company and revised the outlook to 'Negative' for existing instruments of the company.
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ICRA believes that the microfinance industry is experiencing a significant rise in delinquencies due to multiple factors such as overleveraging of borrowers, political movements such as Karza Mukti Abhiyan, adverse climatic conditions, high staff attrition, etc. SSFL is especially facing high attrition and other operational challenges on account of its intention to transition to a weekly collection model. The company has slowed down this transition on account of the headwinds in the sector.
Moreover, Spandana Sphoorty's asset quality performance is likely to face near-term headwinds in view of the stress in the microfinance segment and the tightening of the lending norms as guided by the MFI-SRO (Self- regulatory Organization). Consequently, disbursements are expected to remain muted, given the focus on bringing the asset quality under control, the rating agency noted in rationale.
As of October 2024, 26.7 per cent of SSFL’s borrowers had availed loans from more than three microfinance lenders. Headwinds for the asset quality could continue in the near-term from such overleveraged borrowers, who are likely to face constraints in obtaining incremental microfinance loans, in line with the guardrails for microfinance lenders by Micro Finance Institutions Network (MFIN). The company is obligated to limit its engagement to borrowers with a maximum of three microfinance lenders (including SSFL) from January 2025. This is anticipated to lead to a further deterioration in the asset quality, ICRA said.