ICICI Securities has upgraded its buy target on this NBFC company from Rs. 1,100 to Rs. 1,400 per share, a 33 percent increase from the current price.
The ICICI Securities report highlights the company’s new Vision 2028, which aims for a CAGR of 25 percent or more in AUM and 22 percent or more in customer base growth.
Spandana Sphoorty Financial Limited management expects to grow its AUM to Rs 280 billion with a CAGR of 28 percent by FY28, By implementing risk management products through technology, while the customer base by 6.2 million with a CAGR of 22 percent by FY28.
Furthermore, the company expects to increase its customer acquisition through the development of a weekly collection model with AUM growth of 75 to 80 percent by FY28 from 7 percent. However, the company is to consider limiting the tenure of the unsecured nature of loans to 18 months to achieve an AUM of 30 to 40 percent by FY28 from 10 percent.
Based on the positive outlook of the company ICICI securities has revised the target from Rs 1,100 to Rs1,400 per share, with an upside of 33 percent from Friday’s closing price of Rs 1,053.
Here is the Rationale behind the recommendation
Risk management
Risk management is a strong strategy for preserving portfolio quality. Short loans, income verification, customer debt monitoring, and digital processes are prioritized. Analytics, scorecard lending, automation, and real-time risk monitoring are all possible with Spandana 2.0’s tech platform.
Joint Liability Group (JLG)
The core focus of the JLG Model is still on MFI, with a strong emphasis on the 5/5/5 JLG model for group responsibility and improved credit behaviour. Weekly collections to strengthen customer relationships.
Non-Maximum Foreseeable Loss (MFI)
Gradual expansion via the Criss Financial subsidiary. LAP and nano enterprise loans are available through dedicated branches and personnel. Aims to increase non-MFI portfolio to INR 30-35 billion by FY28.
Risk Diversification
Reduce top-three state concentration and increase non-MFI book to 10-15 percent of total AUM by FY28. Strict credit limits, with maximum loan amounts that are 35-40 percent lower than peers.
Human Resource
Spandana’s success hangs on its people. New leadership prioritised human capital, attracting MFI veterans and fostering a nurturing environment with competitive salaries, open communication, and employee benefits. They’re strategically expanding across seven states, aiming for 1,950 branches by FY28.
Customer acquisition
New customer acquisition drives 30-35 percent of their business, with a target of 6.2 million customers by FY28. While risks exist, Spandana’s commitment to talent and customer reach paints a bright future.
Spandana Sphoorty Financial Ltd
On Friday the share price of Spandana Sphoorty Financial Ltd closed 0.34 percent down Rs 1053 from the previous close of Rs 1056.8.
Looking at the Spandana Sphoorty Financial Ltd financials, the net revenue increased by 105 percent year over year, from Rs 297 crore in Q2FY23 to Rs 610 crore in Q2FY24. In addition, the company’s net profit rose by 127 percent year over year, from Rs 55 crores in Q2FY23 to Rs 125 crores in Q2FY24.
Spandana Sphoorty Financial Ltd is a small-cap company with a market capitalization of Rs 7,540 crores. The share price of the stock rose 51 percent in the last six months and 83 percent in the year to date.
Spandana Sphoorty Financial Ltd is an NBFC-MFI registered with the Reserve Bank of India (RBI). Spandana Sphoorty Financial is primarily in the microfinance business, offering small-value unsecured loans to low-income customers in semi-urban and rural areas.
Written by Sriram KV
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