Spandana Sphoorty Financial (Spandana) in Q2FY21 continued its proactive approach in strengthening its balance sheet by building additional Covid-related provisions at Rs 1.14 bn (~155bps of AuM), taking cumulative contingency buffer to ~450bps (highest in MFI space). Notably, collection efficiency improved steadily to as high as 93% in October with customer activation remaining robust at ~94%. Collections in states like Maharashtra, Odisha and Chhattisgarh remained lower than the average due to lockdown and a few instances of political interference.
While the ~6% inactive customer base poses near-term risk, we believe it will navigate through current cycle relatively better than peers due to: (i) diversified operations with 95% of districts having <1% exposure per district; (ii) provisioning buffer at Rs 3.3 bn (4.5% of AuM); and (iii) comfortable capital position (CAR 45%). Maintain Buy with a revised TP of Rs 900 (earlier: Rs 740).
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