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Please refer to important disclosures at the end of this report
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Spandana Sphoorty Financial (SSFL) was established in 2003 and got registered
as an NBFC in 2004. The company provides microfinance largely to women from
lower-income households with an average loan size of `17,768/customer, in
which it follows ‘joint liability group’ model. It also follows a diversified lending
and borrowing strategy. It has wide presence in the nation with presence across
16 states and 1 union territory. Spandana stands as the 4th largest NBFC-MFI
nationally in terms of AUM with a size of `4,437Cr in FY2019.
Continuous improvement in performance: By March 2010, SSFL was the 2nd
largest MFI in India in terms of AUM and borrowers. In October 2010, the MFI
industry was severely impacted due to external regulatory action (govt. of formerly
unified Andhra Pradesh promulgated AP Microfinance Ordinance 2010),
enforcing several restrictions on the operations of MFIs. This, severely affected
Spandana’s collections and the consequent cash-flow shortage impacted its ability
to service debt, impairing SSFL’s growth. Hence, SSFL’s lenders moved the
company into CDR (Corporate debt restructuring). However, SSFL continued its
efforts and turned profitable by 2014. SSFL also received capital infusion from its
Corporate Promoter and Kedaara AIF–1, enabling it to exit from CDR mechanism
successfully. Since exit from CDR, SSFL has improved on all parameters like avg.
effective cost of borrowing declined from 16.3% to 12.3%; PAR 0+ reduced from
`139.1cr to `38.3cr; and AUM grew at CAGR of 52% over FY2017-19.
Credit rating upgrade post listing to help reduce cost of borrowing: In FY2017,
SSFL did not have a credit rating, however, in August 2017 it received a rating of
BBB-, and since then the rating kept on improving and now it stands at A-. We
believe that post listing there is a strong possibility of a rating upgrade, which will
help to reduce the incremental cost of borrowing.
Diversified AUM across 17 states and opportunity to cater unbanked population:
SSFL’s operation is well spread across 17 states with 929 branches. No single
state/district/branch contributes more than 20%/1.8%/0.3% to the AUM as of
March 2019. Average loan per borrower is at ~`17,800 vs. close peers at more
than `25,000, which clearly shows management’s conservative approach and
clears risk diversification by limiting AUM by state/ district /branch.
Outlook & Valuation: At upper end of the price band, SSFL is valued at 2.7x of
FY2019 BV (Pre-IPO) and on post dilution basis at 2.4x of Book value, whereas
close peers i.e. CreditAccess Grameen is trading at 3x FY2019 BV. Given SSFL’s
successful exit from CDR in March 2017, healthy NIM, return ratio and low
penetration of financial services in rural India coupled with a well-capitalised
balance sheet and experienced management; we believe the company has an
excellent base for next level of growth. Based on the positive factors, we assign
SUBSCRIBE rating to the issue.
Exhibit 1: Key Financial
Y/E March (` cr)
FY17
FY18
NII
221.2
335.7
YoY Growth (%)
51.8
PAT
432.8
187.3
YoY Growth (%)
(56.7)
EPS
72.6
31.4
Book Value
155.5
233.2
P/E
11.8
27.3
P/BV
5.5
3.7
ROE (%)
50.7
19.0
ROA (%)
36.2
10.3
Note - Valuation done on pre IPO financials
SUBSCRIBE
Issue Open: Aug 05, 2019
Issue Close: Aug 07, 2019
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 63%
Others 37%
Post Issu e Sh areholding Pattern
Post Eq. Paid up Capital: `64.3cr
Issue size (amount): *`1,198cr -
**1,201 cr
Price Band: `853-856
Lot Size: 17 shares and in multiples
thereafter.
Post-issue implied mkt. cap: *`5,485cr
- **`5,504cr
Promoters holding Pre-Issue: 81.20%
Promoters holding Post-Issue: 62.59%
*Calculated on lower price band
** Calculated on upper price band
Book Bu ildin g
Fresh issue: ` 400cr
Issue D etails
Face Value: `10
Present Eq. Paid up Capital: `59.6cr
Offer for Sale: **0.94cr Shares
Jaikishan J Parmar
Research Analyst
+022 39357600, Extn: 6810
Jaikishan.parmar@angelbroking.com
Spandana Sphoorty Financial Limited
IPO Note | Financials
Aug 03, 2019
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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Company Background
Spandana Sphoorty Financial (SSFL) is an NBFC-MFI, which was incorporated as a
company in 2003. Later in 2004, the company got registered as an NBFC with the
RBI and subsequently in 2015 it turned into an NBFC-MFI. It offers loan to women
from low-income households and follows a ‘joint liability group’ model. As of 31
March 2019, Spandana was the fourth largest NBFC-MFI in India in terms of AUM
with a size of `4,437Cr. Of the total AUM 88% of the lending is in the rural areas.
It operates in 929 branches across16 states and 1 union territory. In none of the
branches does it concentrate more than 0.3% of its AUM. This diversification in
lending reduces credit risk for the company. Further, its borrowing is also
diversified which helps it balance its borrowing cost.
Exhibit 1: Strong performance in just 24 months since CDR exit
Particular
Mar'17
Mar'19
Gross AUM (` Cr)
1,302
4,437
Net worth (` Cr)
928
1,889
PAR 0+ (` Cr)
139
38
Profit Before Tax (` Cr)
46
474
Cost-Income Rati o (%)
41.8
24.9
No. of lender s (x)
3
28
Avg. Eff. Borrowing Cost (%)
16.3
12.8
Credit Rating
NA
A- (Stable)
Avg. Eff. Borrowing Cost (%)
16.3
12.8
Exit from
CDR)
(4th largest
NBFC-MFI in India)
Source:RHP
Key Management Personnel:
Padmaja Gangireddy is the Promoter and Managing Director of the company. She
also serves as a director on the board of directors of Caspian Financial Services
Limited. She has been a Director on the Company Board since April 19, 2003. She
founded Spandana Rural and Urban Development Organisation (“SRUDO”) in
1998.
Sudhesh Chandrasekar is the Chief Financial Officer of the Company. He holds a
post graduate diploma in management from the Indian Institute of Management,
Bangalore and a bachelor’s degree in commerce (honours) from Shri Ram College
of Commerce, University of Delhi, Delhi. Prior to joining the Company he worked
with Unitus Capital and with ICICI Bank . Mr. Sudhesh Chandrasekar joined SSFl
on August 17.
Abdul Feroz Khan is the Chief Strategy Officer of the Company. He holds a
masters’ degree in business administration from Institute of Chartered Financial
Analysts of India University, Dehradun. He joined Company on November 10,
2008 as an assistant finance manager and was designated as Chief Strategy
Officer on May 15, 2018.
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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Issue details
This IPO is a mix of OFS and issue of fresh shares. The issue would constitute
fresh issue worth `400cr and OFS worth `801cr. OFS largely would offer
partial exit to investors (Kedaara Capital, Helion Venture Partners, V aliant
Mauritius Partners) and Promoter Padmaja Gangireddy.
Under the OFS, the promoters and other investors are offering 9.3 million
equity shares worth `800Cr.
Exhibit 2: Pre and Post-IPO shareholding pattern
Particular
No of shares
(Pre-issue)
%
No of shares
(Post-issue)
%
Promoter
4,84,31,819
81.2
4,02,45,099
62.59
Investor/Public
1,11,97,364
18.8
2,40,56,981
37.41
5,96,29,183
100.0
6,43,02,080
100.00
Source: RHP Note: Calculated on upper price band
Exhibit 3: Selling Shareholder
Shareholder
Shares Offered
Kangchenjunga Limited
59,67,097
Padmaja Gangireddy
14,23,114
Vijaya Siva Rami
7,96,509
Valiant Mauritius Partners
7,83,747
Helion Venture Partners
1,32,831
Kedaara Capital
1,29,732
Helion Venture Part
1,23,695
Total shares
93,56,725
Source: Company
Objects of the offer
The Net Proceeds of the Fresh Issue are proposed to be utilised for
augmenting capital base and general corporate purposes.
To achieve the benefits of listing the Equity Shares on the Exchanges and to
carry out offer for sale of equity shares
Risk
The operations are concentrated to five states (72% of AUM) and any adverse
sustained economic downturn and political unrest/disruption could change
repayment behaviour of the borrowers.
Unsecured Portfolio –SSGL`s operations involve transactions with relatively
high risk borrowers (Unsecured Loan). Any default from the customers could
adversely affect the business, operations and financial condition.
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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Exhibit 4: Relative Valuation
Particular
M.cap
AUM
M.cap/
AUM
P/B
P/E
AUM
Growth
ROA
ROE
Leverage
CRAR
FY19
YoY
3 Year
FY19
FY19
Spandana
5,505
4,270
1.29
2.4
18
35
52
8.5
19
2.2
40
CreditAccess Grameen
7,198
7,160
1.01
3.0
22
44
43
5.2
17
3.3
36
Bharat Fin
12,596
17,390
0.72
3.0
13
38
31
9.0
27
3.0
50
Credit Satin
1,398
6,730
0.21
1.2
7
33
27
3.1
20
6.5
28
Ujjivan Small Fin
3,948
11,050
0.36
2.1
26
46
27
1.3
8
6.5
19
Bandhan Bank
57,299
34,700
1.65
4.7
29
69
41
3.9
19
4.9
29
Source: Company, Spandana P/B valuation has done considering fresh issue; All other stock Market cap is based on 02/8/2019 and for BFIL last trading
day Mcap.
Exhibit 5: Operational Parameter
Particular
Advance Per
Borrower
AUM Per
Branch
AUM Per
AUM
GNPA/NPA
(%)
` in Cr
` in Cr
FY17
FY18
FY19
Spandana Sphoorty Fin Ltd
17,792
4.7
0.66
42.1/2.9
25.9/0.3
7.9/0
CreditAccess Grameen Ltd
28,640
10.7
0.89
0.1/0
0.8/0
0.6/0
Bharat Fin
23,500
10.1
0.90
6/2.7
2.4/1
0.8/0.2
Credit Satin
21,710
6.9
0.65
14.4/12.8
4.4/2.6
3.9/2.4
Ujjivan Small Finance Bank
27,625
21.1
0.75
0.3/0
0.36/0.7
0.9/0.3
Source: Company, All operation parameter based on FY19 financials
Exhibit 6: Du Pont Analysis for FY19
DuP ont Analysis
BFIL
Cre.Access
Spandana
NII
12.11
12.86
17.57
Provision
0.66
1.20
1.23
Adj NII
11.45
11.66
16.34
Other Inc.
8.38
1.04
1.20
Total Income
19.83
12.70
17.54
Opex
8.13
4.71
3.56
PBT
11.71
7.99
13.98
Taxes
2.83
2.82
4.39
RoA
8.88
5.17
9.59
Leverage
3.01
3.28
2.24
RoE
26.75
16.94
21.50
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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Income Statement
Y/E March (` cr)
FY19
NII
646.5
- YoY Growth (%)
92.6
Other Income
44.2
- YoY Growth (%)
128.8
Operating Income
690.6
- YoY Growth (%)
94.5
Operating Ex penses
171.9
- YoY Growth (%)
58.5
Pre - Provision Profit
518.7
- YoY Growth (%)
110.4
Prov. & Cont.
45.3
- YoY Growth (%)
(228.0)
Profit Before Tax
473.4
- YoY Growth (%)
67.9
Prov. for Taxation
161.6
-
PAT
311.8
- YoY Growth (%)
66.5
Balance Sheet
Y/E March (` cr)
FY17
FY18
FY19
Share Capital
28
30
60
Reserve & Surplus
899
1,361
1,831
Net Worth
928
1,391
1,890
Total Borrowings
959
2,346
3,012
- Growth (%)
145
28
Total provisions
1
0
0
Other Liabilities
41
27
29
Total Liabilities
1,929
3,764
4,932
Cash and Cash equivalents
290
105
149
Investments
4
169
264
Total Loans & Advances
1,195
3,090
4,268
- Growth (%)
159
38
Fixed Assets
9
9
27
Other Assets
431
392
225
Total Assets
1,929
3,764
4,932
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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Key Ratio
Y/E March
FY17
FY18
FY19
Profitability ratios (%)
NIMs
18.5
15.1
16.6
RoA
36.2
10.3
9.6
RoE
50.7
19.0
21.5
C/I
41.8
30.6
24.9
Asset Quality (%)
Gross NPAs %
42.0
25.9
7.9
Net NPAs %
2.9
0.3
-
Credit Cost
8.2
(1.1)
1.1
Per Share Data (`)
EPS
72.6
31.4
52.3
BVPS
155.5
233.2
317.0
Valuation Ratios
PER (x)
11.8
27.3
16.4
P/BVPS (x)
5.5
3.7
2.7
DuPont Analy sis
NII
17.0
15.7
17.6
Provision
7.6
(1.7)
1.2
Adj NII
9.4
17.3
16.3
Other Inc.
0.6
0.9
1.2
Total Income
10.0
18.2
17.5
Opex
4.5
3.5
3.6
PBT
5.6
14.7
14.0
Taxes
(30.6)
4.4
4.4
RoA
36.2
10.3
9.6
Leverage
1.4
1.8
2.2
RoE
50.7
19.0
21.5
Note: Calculations based on higher end of the price band – ₹856 and without considering fresh
issue.
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Spandana Sphoorty Financial Limited I PO Note
Aug 03, 2019
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