Target: ₹550
CMP: ₹412.35
FY22 had been an eventful year for Spandana Sphoorty (Spandana), starting with the resignation of its erstwhile MD and CEO, which triggered operational instability, followed by course-correction. Corrective measures included: appointing new and experienced core management; settling all the disputes with the erstwhile MD by paying one-time settlement amount of about ₹40 crore; streamlining the business process as per the revised RBI guidelines; and rolling out Vision 2025 with RoA/RoE target of over 4.5 per cent/over 20 per cent, respectively.
Therefore, in Q4-FY22, it was focusing more on setting up its strategies, aligning and refining processes to pave the way for achieving Vision 2025 goals. Consequently, it reported a PAT of ₹28.6 crore in Q4-FY22, a decline of 37 per cent quarter-on-quarter due to 14 per cent quarter-on-quarter decline in NII and one-time settlement fees of ₹40 crore.
Monthly disbursements of ₹860 crore in March 2022 suggest fast-approaching business normalcy and also reflect operation realignment. Considering the management and the operational stability, improving visibility on earnings recovery led by credit cost normalisation and favourable risk-reward (trading at 0.7x FY24e P/BV), we upgrade the stock to Buy from Add earlier with a revised TP of ₹550 (earlier: ₹450). Key risks: stress unfolding higher than anticipation; operational instability caused by outside interference.