Spandana Sphoorty Financial Limited

Spandana Sphoorty Financial Limited reported a positive Pre-Provisioning Operating Profit (PPOP) of ₹8 crores in Q3 FY26, a significant improvement from a loss of ₹40 crores in the previous quarter, marking the first positive PPOP in 2-3 quarters. Disbursements saw a robust 27% quarter-on-quarter increase, reaching ₹1,188 crores. Despite these operational improvements, the company recorded a net loss of ₹95 crores for the quarter, primarily due to write-offs and a one-off^📎 impact of ₹8.4 crores from new labor code costs.

The company's asset quality showed significant improvement, driven by the performance of its new book. The new book, sourced from April 1, 2025, now constitutes 58% of the overall AUM and boasts a collection efficiency of 99.8% as of December. Overall pan-India collection efficiency improved to 99.3% in December from 98.7% in September. Standalone Gross Non-Performing Assets (GNPA) decreased to 2.6% from 4.97% last quarter, and Standalone Net Non-Performing Assets (NNPA) reduced to 0.5%. The company also recovered ₹65 crores from the 90+ DPD bucket in Q3.

Lenders demonstrated renewed confidence in Spandana, leading to the successful raising of ₹1,700 crores in Q3, a substantial increase from ₹160 crores in the previous quarter. The company maintained a healthy liquidity position, with ₹1,626 crores in cash and bank balances at the end of December. Bank loans currently account for 42% of overall borrowings, with an expectation to increase to 60% once PSU banks re-enter the fray, especially after the Credit Guarantee Scheme is rolled out. The cost of borrowing increased by 40 basis points to 12.6% in Q3.

Spandana is undertaking several strategic initiatives to enhance efficiency and drive sustainable growth. These include merging its 100% subsidiary, Criss Financial (which has a ₹650 crore book), with the parent company, a process expected to take 6-9 months. The company is also transitioning to a new Loan Origination System (LOS) platform developed by Perfios, aiming to leverage technological advancements for better customer engagement and operational efficiency. Additionally, there are plans to optimize branch network by merging non-productive branches, targeting a reduction from 1,500 to 1,250.

Management aims for sustainable growth, targeting an AUM of ₹9,000-10,000 crores by FY28. The new book is projected to reach 90% of the total AUM by the end of FY26. Monthly disbursements are targeted to stabilize at ₹500 crores and then increase to ₹550-600 crores. The company is also exploring the launch of an individual loan product and plans to grow its Loans Against Property (LAP) book from ₹300 crores to ₹1,000 crores in the next couple of years.

The decision to merge Criss Financial, which primarily deals with individual loans and loans against property, is driven by the recent change in qualifying asset criteria (from 75% to 60%) and the desire to streamline operations and reduce costs associated with a separate management structure. While the individual loan portfolio within Criss Financial has experienced high impairment, the LAP book is performing well with a Gross NPA of just over 1%. Focused efforts are being directed towards improving collections in the individual loan segment before increasing disbursals.

The company is actively working on reducing its operating expenses (OPEX), which have decreased from ₹884 crores two years ago to ₹720 crores this year. This cost reduction, combined with improving revenue and managing credit costs, is expected to drive profitability. Management aims to achieve break-even PPOP in the next quarter (Q4 FY26). The loan officer count is expected to stabilize at 4,800-5,500 in the coming quarters^⏳, which will contribute to improved productivity as the business momentum picks up.