Shares of Spandana Sphoorty Financial surged up close to 5% on Tuesday to hit a new 52-week high of ₹837.60. Analysts at ICICI Securities see further upside on the back of the company’s strong financial performance in the past five quarters.

The Spandana Sphoorty Financial Analyst: The Renish Bhuva-led analyst team at ICICI Securities maintained the ‘buy’ rating on the stock, raising the price target to ₹1,100 from ₹815.

The Spandana Sphoorty Financial Thesis: The brokerage firm in its review note said that Spandana Spoorthy underwent a transformative journey under new management, aiming to establish a sustainable and enduring microfinance lending model starting March 2022. The firm added that since then, in the subsequent five quarters, the company has experienced a consistent and progressive improvement in its earnings trajectory.

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The firm highlighted that in the June quarter, the NBFC continued its impressive financial performance, achieving growth for the fifth consecutive quarter. The Profit After Tax (PAT) demonstrated a remarkable 13% Quarter-on-Quarter (QoQ) increase, reaching ₹120 crore. As per the brokerage firm, this growth was primarily fueled by two key factors:

1. Strong Core Net Interest Income (NII) Growth: The company experienced a significant 9% QoQ increase in Core NII, driven by a 4% QoQ growth in Assets Under Management (AUM) and a 30 basis points expansion in Net Interest Margin (NIM).
2. Moderating Credit Costs: In Q1FY24, credit costs normalised to a level of 1.4%, contributing to improved earnings. This reflects a positive development in managing the company’s credit risks.

However, the firm pointed out that the strong core operating performance was partially offset by higher operating expenses, which rose by 13% QoQ.

Going forward, the firm said that with the “management highlighting further yield expansion in Q2/Q3FY24 and credit cost at 1.6% in FY24, we increase our earnings estimate by 23% each year in FY24E/FY25E.”

Price Action: Spandana’s share price was down 1.51% to trade at ₹788.65 on Tuesday afternoon.

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