Spandana Sphoorty plunges 16% on weak Q2 results; tanks 69% from 52-wk high

The microfinance lender suffered a consolidated loss of Rs 216 crore in the second quarter ended September 2024 (Q2FY25) due to higher credit cost due to an increase in delinquencies

Spandana Sphoorty Financial Ltd (SSPL) share price hit a multi-year low of Rs 386.10 as it plunged 16 per cent on the BSE in Tuesday's intraday trade after the microfinance (MFI) lender suffered a consolidated loss of Rs 216 crore in the second quarter ended September 2024 (Q2 FY25) due to higher credit cost due to an increase in delinquencies. It had posted a consolidated net profit of Rs 125 crore during the same period last year.

 

The stock is quoting at its lowest level since June 2022. It has tanked 69 per cent from its 52-week high of Rs 1,243.10 touched on January 1, 2024. The stock had hit a record high of Rs 1,400 on November 8, 2019. At 09:50 AM, SSPL was trading 13 per cent lower at Rs 399 as compared to 0.36 per cent decline in the BSE Sensex.

 

 

SSPL's net interest income (NII) expanded by nine per cent year-on-year (Y-o-Y) to Rs 341 crore in Q2 FY25 from Rs 312 crore in Q2 FY24. The Net Interest Margin (NIM) declined sharply to 12.8 per cent in Q2 FY25 from 14.1 per cent in Q2 FY24. The assets under management (AUM) grew eight per cent Y-o-Y to Rs 10,537 crore in Q2 FY25 from Rs 9,784 crore at the end of Q2 FY24.

 

The impairment on financial instruments grew almost six-fold to Rs 516.41 crore in Q2 FY25 from Rs 90.5 crore a year ago. The temporary disruptions had an impact on asset quality. The gross non-performing assets (NPAs) rose to 4.86 per cent in September 2024 from 2.6 per cent in June 2024 and 1.4 per cent in September 2023. The Net NPAs moved up to 0.99 per cent in September 2024 from 0.53 per cent in June 2024 and 0.42 per cent a year ago.

 

The microfinance sector has been facing multiple headwinds over the last two quarters. The operations that were initially impacted by long drawn elections and intense heat wave during summers 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, according to the management.

 

The management further said that the team has taken up various measures to address the challenges including increasing bench strength, strengthening branch level controls, introducing technology and people interventions, refining of credit policy and focusing on softer aspects. With improvement in the operating environment and the various initiatives undertaken, the management expects the situation to normalize in the coming quarters.

 

SSPL is a rural-focused non-banking financial company and a microfinance lender (NBFC-MFI) with a geographically diversified presence in India. The company offers income generating loans under the joint liability group (JLG) model, predominantly to women from low-income households in rural areas.

 

Despite efforts to strengthen internal controls and focus on collections, the company continues to grapple with operational inefficiencies, rising borrowing costs, and weakened portfolio quality. Management remains cautiously optimistic, expecting normalisation by the end of FY25, ICICI Securities said in a note.

 

Meanwhile, socio-political intervention risk and regulatory uncertainty, apart from risks emanating from unsecured lending and the marginal profile of borrowers (who are vulnerable to economic downturns), besides operational risks related to cash-based transactions have hit the sector.

 

According to CRISIL Ratings, the microfinance sector has witnessed various events over the years, including regulatory and legislative challenges that have disrupted operations. Some of these events include the Andhra crisis, demonetisation in 2016, Covid-19, and socio-political issues specific to certain states.

 

These events have adversely affected the sector, elevating delinquencies and hurting the profitability and capitalisation metrics of NBFC-MFIs. These challenges underscore the vulnerability of the microfinance business model to external risks. Covid-19, in particular, introduced new challenges, aggravating existing vulnerabilities in the sector by heightening credit risks and the likelihood of loan default by borrowers.