Profit Returns Amidst Revenue Fall

Spandana Sphoorty Financial reported a net profit of ₹5.27 crore for the March quarter, a significant reversal from last year's ₹434.3 crore loss. This profit jump was driven by improved EBITDA, which rose to ₹121 crore from a negative ₹389 crore in the previous year. The company credited this turnaround to better portfolio quality and collection rates near 99.7%. Loan disbursements also increased by 30% from the previous quarter to ₹1,539 crore. However, the company's revenue fell sharply by 37.4% year-on-year, dropping to ₹260 crore, casting doubt on the sustainability of its profit recovery.

AUM Growth Returns After Eight Quarters

The company's Assets Under Management (AUM) grew 12% from the previous quarter to ₹4,420 crore as of March 2026. This is the first quarterly AUM increase in eight quarters, signaling a potential return to lending growth. Spandana Sphoorty also reported ₹1,155.27 crore in technical write-offs during the nine months ending December 2025. These write-offs, aimed at cleaning up the balance sheet, helped reduce Gross Non-Performing Assets (GNPA) to 3.78% from 4.24% sequentially. However, these clean-up measures could mask deeper issues with older loans.

Sector Challenges and Peer Comparison

New labor codes could increase Spandana Sphoorty's gratuity and leave liabilities by an estimated ₹7.59 crore for FY26, a manageable impact. The microfinance sector, however, faces ongoing challenges like rising interest rates and stiff competition from banks and fintech firms. CreditAccess Grameen, a peer, showed stronger year-on-year AUM growth and stable margins during the same period. Spandana's revenue decline suggests it may be facing tougher competition or taking a more aggressive stance on cleaning up its books. The company's stock surged 12.02% to ₹268.00 on April 5th, with trading volumes well above average. This sharp stock rise appears large given the revenue drop, possibly due to short-covering.

Concerns Over Write-offs and Revenue

The profit recovery is notable, but the revenue drop of more than a third year-on-year requires caution. The ₹1,155 crore in write-offs, while framed as a balance sheet clean-up, points to underlying problems in older loan portfolios. This strategy, while reducing reported GNPA, may not signal true asset quality improvement and could hide future needs for loan loss provisions. Competitors have achieved better revenue growth, indicating Spandana Sphoorty might be falling behind in market reach or new product development. With a market capitalization around ₹2,600 crore, the company's valuation appears high given its revenue challenges and the difficulties of aggressive balance sheet clean-ups. The microfinance sector also remains vulnerable to regulatory shifts and economic changes, potentially slowing any recovery.

Management's Growth View

CEO Venkatesh Krishnan expressed confidence in the company's future growth, stating it is positioned well following its return to profit and better asset quality. However, the company did not provide specific forward-looking guidance in its recent filings. Analyst views are mixed; some have upgraded their ratings following the profit increase, while others remain cautious and await signs of consistent revenue growth and the long-term effects of balance sheet adjustments. The company's stock performance will depend on its success in growing revenue and maintaining profits without further major write-offs.