Spandana Sphoorty IPO: Information Analysis

India's fourth-largest NBFC-Micro Finance Institution (MFI) with a loan book of Rs 4,437 crore (as of FY19), Spandana Sphoorty provides income-generating loans to women from the low-income group under the joint liability group model, with 94.6 per cent of its portfolio located in rural areas. According to the joint liability group model, 4-10 individuals come together to avail loans on an individual basis or through the group mechanism against the mutual guarantee. The company went into Corporate Debt Restructuring mechanism in 2010 owing to the enactment of AP Microfinance Ordinance, which enforced several restrictions on the operations of MFIs, thereby impacting the debt servicing capability of the company. Further, the company restructured its debt and made efforts towards portfolio diversification, process improvement and cost rationalisation. All these initiatives led to operations turning profitable by March, 2014. In 2017, the company received a capital infusion of Rs 300 crore from Kangchenjunga, corporate promoter and a fund with a majority holding of Kedaara Capital along with other global funds and Kedaara AIF - 1. Since exit from CDR in 2017, the company's credit rating (by ICRA) improved from BBB- (Stable) in August 2017 to BBB+ (Stable) in May 2018 and to A- (Stable) in March 2019, which helped it access funds from multiple sources to fuel growth in AUM at 85 per cent CAGR between FY17-19. Through the IPO proceeds, the company is looking forward to increasing its capital base by Rs 400 crore of fresh issue and pursuing its expansionary business plans. Strengths 1) Geographically diversified operations: Spandana operates in 16 states and one union territory, covering 269 districts through its 929 branches. The company has put various caps on gross loan portfolio at the state and district levels. As a result, no single state and district contributes more than 20.0 per cent and 1.8 per cent, respectively, to the AUM. 2) Improving asset quality and credit profile: Since its exit from CDR, the company's credit rating (by ICRA) improved from BBB- (Stable) in Aug 2017 to BBB+ (Stable) in May 2018 and to A- (Stable) in Mar 2019, enabling it to access funds from multiple sources at lower costs and grow its AUM aggressively. Also, over the years, the company's asset quality has improved, with net stage three (excluding AP portfolio) Portfolio at Risk which represents the total loan outstanding that are overdue for 90 days or more at 0.01 per cent as of FY19. Weakness 1) Limited testing period: The company came out of the CDR mechanism in 2017 and therefore, F