Spandana Sphoorty Financial - Q4 FY21 Result Update - YES Securities

(Rating: BUY, TP: Rs 875, Upside: 58.0%)

Extended uncertainty and credit cost pain to weigh on stock performance in the near term

- Collection efficiency has dipped sharply in April-May (coming down from 96% to around 80%) and if the lockdowns/restrictions are extended to June (couple of states have done so), then PAR metric could see a substantial deterioration.

- This would call for elevated provisions for ensuing quarters as well, notwithstanding the significant provionsing buffer held as of March. Disbursements have been on pause and approach will be calibrated in the near term.

- Our earnings and BV estimates for FY22/23 witness a significant downgrade, as we slash AUM growth forecast and build a materially higher credit cost (more than management's assessment of 3.5-5%) for FY22.

- Equipped with higher capital and pre-provisioning profitability, Spandana should be able to withstand the pain and even grow when situation normalizes.

- Retain BUY with a lowered price target of Rs875. The stock trades at 0.9x FY23 P/ABV.

Source : Equity Bulls

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