Release Date: July 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spandana Sphoorty Financial Ltd (BOM:542759, Financial) reported a 47% YoY increase in net interest income to INR425 crores.
- The company received two rating upgrades: India Ratings upgraded to A+ Stable from A Stable, and ICRA upgraded to A+ Stable from A Positive.
- Disbursement for the quarter was INR2,283 crores, showing a 37% YoY growth.
- The LAP and Nano loans business under Criss Financial Limited crossed INR100 crores, delivering a yield of 23.75% with almost 100% collection efficiency.
- The company has implemented several measures to improve portfolio quality, including stopping new-to-credit customers, pausing new member acquisition in 14% branches, and enhancing bench strength in 60% branches by 20%.
Negative Points
- The company experienced a significant increase in GNPA to 2.6% from 1.63% a year ago, and NNPA increased to 0.53%.
- High attrition rates in key geographies (Madhya Pradesh, Rajasthan, Gujarat, Maharashtra, and Telangana) affected operations, with branch manager attrition at 10.5% in these states.
- The severe heat wave and election disruptions led to higher absenteeism and operational challenges, impacting portfolio quality.
- Credit cost guidance for the year has been increased to 3.75% from the previously guided 2.5%, indicating expected further slippages.
- The company has reduced its AUM growth guidance for the fiscal year, reflecting the operational challenges faced in Q1.
Q & A Highlights
Q: What is the disconnect between the high collection efficiency in Parivartan branches and the significant contribution to GNPA from these branches?
A: The Parivartan branches are not very different from non-Parivartan branches now. The issues faced, such as heat waves and election disruptions, affected all branches. The historical legacy problems of Parivartan branches have now flowed into the GNPA bucket. The disruption has happened everywhere, and the focus is on normalizing operations across all branches. (Ashish Damani, CFO; Shalabh Saxena, CEO)
Q: How do you plan to address the high attrition rates in key geographies?
A: We have taken several steps, including adding support staff in 20% of branches, enhancing bench strength by 20% in 60% of branches, and providing tech-enabled monitoring tools to supervisors. These measures aim to reduce the workload on branch managers and improve overall branch operations. (Shalabh Saxena, CEO)
Q: What is the outlook on credit costs, and do you expect further slippages?
A: We expect credit costs to be around 3.75% for the full year, higher than the previous guidance of 2.5%. This is due to the disruptions experienced in Q1. We anticipate some improvement in the 30 to 90-day bucket and expect operations to normalize by Q3 and Q4. (Ashish Damani, CFO)
Q: How are you addressing the challenges in the five key states with high attrition and portfolio quality issues?
A: We have implemented several measures, including stopping new-to-credit customer sourcing, pausing new member acquisition in 14% of branches, and restricting new center additions in 39% of branches. We are also providing additional support to branch managers and enhancing bench strength to manage attrition and improve portfolio quality. (Shalabh Saxena, CEO)
Q: What are the reasons for the sharp increase in Stage 2 coverage?
A: We updated our ECL model last quarter, smoothing data across an eight-year period and removing biases from events like COVID-19. This led to an increase in the PD rates for both Stage 1 and Stage 2, resulting in higher provisioning. (Ashish Damani, CFO)
Q: How do you plan to lift the restrictions on new customer acquisition and center additions?
A: Each branch has internal benchmarks to meet before lifting restrictions. We are focusing on improving portfolio quality and will open up new customer acquisition and center additions once these benchmarks are met. (Shalabh Saxena, CEO)
Q: Why are yields still improving despite broad-based yield moderation in the sector?
A: The improvement in yields is due to a better mix of loans and the absence of DA transactions this quarter. We have also passed some benefits to customers, and our steady-state NIM is expected to be around 14%. (Ashish Damani, CFO)
Q: Is there a pattern in attrition between Parivartan and non-Parivartan branches?
A: There is no specific pattern in attrition between Parivartan and non-Parivartan branches. The higher attrition was observed in specific states, not necessarily linked to the Parivartan initiative. (Shalabh Saxena, CEO)
Q: How do you address the concerns about the overall stress in the microfinance industry?
A: We do not believe there is a systemic overleverage issue in the industry. The focus should be on managing attrition, ensuring controls and supervision, and addressing any instances of misappropriation or fraud. (Shalabh Saxena, CEO)
Q: What are the reasons for Spandana's weaker performance compared to peers?
A: The disruption in Q1 was accentuated by high attrition in key states. However, there are no structural differences in our operations compared to the industry. We are confident that the measures we have taken will help us recover and normalize operations in the coming quarters. (Shalabh Saxena, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
