ICICI Securities is bullish on Spandana Sphoorty has recommended buy rating on the stock with a target price of Rs 620 in its research report dated June 03, 2020.
ICICI Securities research report on Spandana Sphoorty
Spandana Sphoorty’s (Spandana) Q4FY20 earnings has to be seen against the backdrop of its pro-active upfronting of Covid-19-related provisions at Rs1.3bn (~190bps of AuM), highest within the MFI space, and yet delivering ~5% RoA. While AuM growth remained strong at 56% YoY, average ticket size increased by a sharp 50% YoY to ~Rs26,500 – this is a parameter to watch out for going ahead. Higher securitisation income of Rs1bn and margin expansion supported revenue progression and enabled Spandana to improve its cost/income ratio in Q4FY20. Notably, it collected >Rs1.45bn since Apr’20. While entering Covid-19 phase with high growth (47% CAGR FY18-FY20), biweekly/monthly collection model and the likelihood of ~20% borrowers availing extended moratorium poses near-term risk on asset quality. However, Spandana’s diversified operations with 95% of districts having.
Outlook
While near-term asset quality and growth concerns persist, we believe Spandana’s comfortable capital position (CAR at 52.9%), industry-leading profitability (PPoP margin at 16%) and ~190bps of contingency buffer would ensure it achieves normalcy quicker than peers. Maintain BUY with a revised target price of Rs620 (earlier: Rs570). The stock is currently trading at 1.1x / 0.9x FY21E / FY22E P/BV respectively.
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