SpN corporate PPt

Corporate presentation

Spandana Sphoorty Financial LimitedHyderabad, INDIA

June 2010

Agenda

• Industry Overview and Spandana’s positioning

• Product Suite

• Key financial and operating metrics

• Investors, Bankers and Rating

• Key Strengths of Spandana

Agenda


• Product Suite




MFIs in the retail financial servicesMicrofinance Institutions is one of the fastest growing space mainly due to huge unmet demand

What is Microfinance and MFI ?

• Microfinance is the provision of micro-credit and other financial services to low-income households• Microfinance Institutions (MFIs) are the client servicing interface, working predominantly with women and

providing doorstep financial services• Non-Banking Finance Companies/ Societies/ Trusts/ Coops are the dominant legal form of MFIs

Industry Overview

• Retail financial services landscape in India is dotted by following key players – • Govt/ Public Sector: Banks, District Credit Cooperatives, Regional Rural Banks etc• Private Sector: Indian Banks, Foreign Banks, Non-Banking Finance Companies, including

Microfinance Institutions (MFIs), Urban Coop Banks etc• Unorganized players: Moneylenders, Pawn brokers etc.

* Size of Financial Exclusion: Dr. D Subbarao, Governor, Reserve Bank of India, June 2010

Large Unmet Demand

• * Only 5% of habitations in India have a Commercial Bank branch, only 40% of population has savings Bank account – large gaps in financial inclusion exist

• Estimated demand of Microfinance is INR 333,000 crore (USD 74 billion) against which, only 10% has been reached – including private sector MFIs and govt.’s SHG-Bank linkage programme

Growth path

• Microfinance business model has now been well proven with over 2 decades of successful track record• MFIs have shown an aggregated growth of over 100% year-on-year for the last 5 years• Being a disaggregated industry, large players with sizeable operations and established track record of

scaling-up the loan portfolio, will continue to grow at a fast pace

Spandana, place in the IndustrySpandana Sphoorty Financial Services (SSFL), Hyderabad India

Leader in operational efficiencies

• Process Efficiencies resulting in operating expense ratio at sub 6% level against the industry avg of ~12%• Good portfolio quality with a cumulative repayment rate of 99.9% shows that the business model has

shown its robustness over the last 10 years• Staff productivity at over 400 clients per staff against an industry average of 252**

Large scale

• Spandana is the 6th largest MFI in the world, and 2nd largest in India in terms of number of clients• Started operations in 1998 at Guntur, Andhra Pradesh and steadily grew at a compounded annual growth

rate of about 100% since then – mainly due to high degree of customer connect• Scale of operations*: 4.5 mn clients, about 12,000 on roll trained staff, over 1,600 branches in 12

States of India with Asset Under Management (AUM) of about Rs.4,000 crore (USD 0.9 Bn)

* as on June 30, 2010 ** M-CRIL Analytics, 2009 ***CRISIL: India's leading Ratings, Research, Risk and Policy Advisory company (www.crisil.com)

Rating/ Grading

Proven track record

• Strong management team lead by a dynamic leader, founder and Promoter Mrs. Padmaja Reddy• Disbursed over Rs.13.7 thousand crore (USD 3 Bn) cumulatively since inception • Most profitable MFI with highest Return on Assets (7%+ against an industry average of 3.5%)• Optimum Capitalization also ensures one of highest Returns on Equity, presently at 50%+ levels

• ***CRISIL MFI grading: mfR1 (highest rating grade; first MFI to achieve this distinction)• CRISIL Rating of debt and bank facilities: A-/Stable/P1’ (best in the industry)

Sustained growth model

• New products under pilots and testing are under scale-up• States where operations started in last 2 ys are ready for scale-up, many new potential states available• Over 42 Banking relationships across Public / Private/ Foreign Banks

http://www.crisil.com/

Agenda


• Product Suite




Product SuiteDeep customer segment understanding and scalable credit-product proposition

General Loan(Abhilasha)

Agri Family Loan

(Dharani)

Individual Loan

(Sphoorty)Group Loan(Pragathi)

Emergency loan

(Samruddhi)

Nature of Loan

Purpose of Loan

Typical Customer

Loan Size

Loan Tenor

Repayment Terms

Group

For income generation activities

Wage labourers (both skilled

and unskilled) formed in a group of 10

women

Rs 2,000 to Rs 20,000

50 weeks

weekly equated installments

Individual

For small business activities

Small and micro

entrepreneurs with co-obligant

guarantee

Rs 21,000 to Rs 200,000

12 to 24 months

Monthly

Group

For agriculture and allied activities

Small and marginal farmers

and tenant farmers

Rs 5,000 to Rs 30,000

11 months

Interest monthly; principal semi-

annually

Group

For income generating activities

Low-income clients with

slightly better well being than

Abhilasha customers

Rs 15,000 to Rs 25,000

12 to 24 months

monthly equated installments

Group

For emergency cash flow

needs

Existing customers

Rs 2,000 to Rs 10,000

50 weeks

weekly equated installments

Product Suite

Farm Equipment Loan

(Karshak)

Individual

For purchase of farm equipments such as tractors

Farmers and young

entrepreneurs with hypothecation of

vehicle

Rs 50,000 to Rs 350,000

3 years

Monthly

Loans are serviced at the customer locations (slums/ villages) with complete transparency – disclosure of all terms of loan, no hidden charges in the name of value added services

Agenda


• Product Suite




Spandana, Key MetricsOperational and Financial snapshot

Particulars Mar-07 Mar-08 Mar-09 Mar-10No. of Branches 295 435 944 1,533% Growth 47% 117% 62%

No. of Employees 1,911 3,024 6,373 10,428 % Growth 58% 111% 64%

No. of Clients (mn) 0.97 1.24 2.5 4.2 % Growth 28% 105% 64%

No. of Borrowers (mn) 0.92 1.19 2.4 3.7 % Growth 30% 104% 52%

Cum. loan disbursed (Rs mn) 17,833 29,756 59,959 119,758 % Growth 67% 102% 100%

Gross Loan Portfolio (Rs mn) 3,916 7,313 18,683 35,567% Growth 87% 151% 90%

Total Income (Rs mn) 608 1,339 3,556 7,241 % Growth 120% 166% 104%

Profit after Tax (Rs mn) 26 271 903 2,035 % Growth 942% 233% 125%

120%

p.a.

Gross loan Portfolio (Rs. mn)

88%

p.a.

Branches

175%

p.a.

Profit after Tax(Rs. mn)

• Sustained growth in all operating and financial metrices

• Spandana is the first MFI to cross PAT of Rs.200 cr (USD 45 mn)

Spandana, Key Milestones

1998 2004 2005 2006 2007 2008 2009

• Registered as a society under Societies Registration Act, 1860

• Transformation to a non-deposit taking NBFC

• Reached 0.1 MM borrowers

• Received CRISIL rating of mf3

• Annual disbursement crossed Rs 1Bn

• Pioneered portfolio sale in the industry

• CRISIL rating upgraded to mf2

• First round of PE infusion by JM Financial and Lok Capital

• Pilot launch of Farm Equipment Loan

• Second round of PE infusion by Valiant Capital Partners

• Reached 1mn borrowers

• Annual disbursement crossed INR 10Bn

• Reached 3mn borrowers in August

Growth across Andhra Pradesh

Guntur, Andhra Pradesh Karnataka Orissa, Maharashtra,

ChhattisgarhRajasthan,

Madhya PradeshTamil Nadu

Registered as a Society

4 13 34 110

• Pilot launch of Agri Family Loan

New Product Pilot and Testing

Planned new state entries

Jharkhand

2010

• Reached 3.7 mn borrowers in March

• Became largest player across all distt. of AP

386 722 916 1,189 2,432 3,703

Number of Borrowers ('000s)

Post External Equity Funding3 Yr CAGR in Loan Book:

109%

Post Conversion to

NBFC2 Yr CAGR in Loan Book:

28%

Gujarat

80 190 710

2,842

Sep-07 Mar-08 Sep-08 Mar-10

560 1,280

1,970

5,130


Contiguous growth strategyHelps in significant growth in every new market

Karnataka – Entry in FY05Gross Loan Portfolio (Rs MM)

60 180 550

3,000


Tamil Nadu – Entry in FY06Gross Loan Portfolio (Rs MM)

Maharashtra – Entry in FY07Gross Loan Portfolio (Rs MM)

20 230 760

2,390


Orissa – Entry in FY07Gross Loan Portfolio (Rs MM)

• In every new state that Spandana enters, within a few years, contiguous growth strategy helps in rapid scale-up

• Despite the growth, the Company has been able to maintain its asset quality

• The Company has successfully increased its geographical presence from only 3 states in March 2007 to 12 states in 2010

4 Yr CAGR (07-10) : 74% 4 Yr CAGR (07-10) : 166%

4 Yr CAGR (07-10) : 144% 4 Yr CAGR (07-10) : 231%

Spandana Outreachas on 31 March 2010

Andhra Pradesh• 787 branches• 37,772 villages• 2,159,469 clients

Karnataka• 222 branches• 9,630 villages• 571,479 clients

Goa• 3 branches• 65 villages• 3,802 clients

Maharashtra• 125 branches• 6,024 villages• 382,537 clients

Tamil Nadu• 121 branches• 3,599 villages• 337,291 clients

Rajasthan• 9 branches• 233 villages• 20,559 clients

Orissa• 114 branches• 8,209 villages• 353,777 clients

Madhya Pradesh• 100 branches• 2,976 villages• 269,226 clients

Gujarat• 7 branches• 37 villages• 2,375 clients

Chhattisgarh• 36 branches• 1,652 villages• 84,350 clients

Jharkhand• 6 branches• 107 villages• 7,240 clients

New states (post 2008)

Old states (pre-2007)

State of origin (pre-2006)

Profit and Loss statementfor last 4 years

Profit & Loss Account FY 2007 FY 2008 FY 2009 FY 2010

Income from Operations 469 1,133 3,424 7,004

Other Income 26 141 143 237

Total Income 495 1,274 3,567 7,241

Financial expenses 148 417 1,182 2,210

Personnel expenses 143 233 587 1,144

Operating and other expenses 67 81 165 362

Depreciation 6 9 26 54

Provisions and write offs 89 75 187 360

Total Expenditure 453 815 2,147 4,130

Profit before tax 43 459 1,420 3,111

Tax 16 189 517 1,075

Profit after tax 27 270 903 2,036

Balance in P & L brought fwd - - 216 939

Amount available for appropriation 27 270 1,119 2,975

Transfer to statutory reserve 6 54 181 407

Balance carried to balance sheet 21 216 939 2,568

Earnings per share

Basic and diluted - Rs.10/ share 3 29 80 152

Expenditure

Income

•Annualized portfolio Return (APR) at 26.5%. [against industry avg. of 28%]

•Operating expense ratio at 5.1% [against industry average of 12%]

•Provisions and write-offs include a 1% standard asset charge – higher than the RBI prescribed norms

•Return on Assets at 7%+ [against industry average of 3.5%]

•Return on Equity at 52% [highest in the industry]

•Audited by one of the top-4 Audit firms

•1USD = 46 INR (approx)

All figures in INR million

Balance sheetof last 4 years

All figures in INR millionBalance Sheet FY 2007 FY 2008 FY 2009 FY 2010

Sources of funds

Share Capital 86 434 134 135

Reserves and surplus 65 450 2,647 4,716

Shareholders' funds 151 884 2,781 4,851

Subordinated loan (unsecured loan) 195 200 185 -

Secured loans 2,751 4,726 14,761 21,944

Total 3,099 5,813 17,727 26,795

Application of Funds

Fixed assets 24 38 86 115

Investments 6 14 2,951 1

Deferred tax asset, net - - 37 95

Cash and bank balances 448 1,013 2,724 7,766

Loan portfolio (excluding assigned portfolio) 2,698 4,883 12,471 21,301

Other current assets 29 77 130 190

Current assets, loans and advances 3,175 5,973 15,325 29,257

Current liabilities 93 45 367 1,962

Provisions 14 167 304 712

Current liabilities and provisions 107 212 671 2,674

Net current assets 3,068 5,760 14,654 26,583

Total 3,099 5,813 17,727 26,795

Agenda


• Product Suite




Investors, Bankers and Rating

At different stages, institutional investors have joined Spandana and contributed to its growth. As on March 31, 2010, Spandana has a paid-up Share Capital of Rs.13.5 crore (USD 3 mn)

Bankers: Spandana focuses on diversified fund sources so that the cost of borrowing is reduced.

Spandana is supported by 48 Bankers and financial institutions.

Some of the relationships are over five year old –FWWB, SIDBI, ICICI Bank, HDFC Bank and ING Vyasya Bank

Public sector Banks have been showing increasing interest is taking exposure with us.The major funding instruments are Term Loans, Portfolio Sales (bilateral assignments and Securitisation), Capital Markets (NCDs) and Money Market (CPs) products.

Highest rating & grading in the industry (by CRISIL) –• Rating of debt & bank facilities ‘A-/Stable/P1’• Grading of institutional ability: mfR1

Investors

EPS: Rs.152 (Face Value Rs.10)

Board of Directors

• Ms. G Padmaja Reddy Founder, promoter and Managing Director of Spandana - She has been instrumental in building Spandana into one of the leading MFIs famed for its scale, efficiency, productivity and profitability

• Dr. Rajiv Behari Lall CEO & MD of IDFC. He earlier worked as Partner at Warburg Pincus, as ED with Morgan Stanley, as a Policy Advisor and Economist at the World Bank, ADB, and in academia.

• Mr. V.P. Shetty Executive Chairman of JM Financial Limited- Asset Reconstruction Company – earlier worked as GM- Vijaya Bank, Chairman and MD-UCO Bank, Chairman & MD-Canara Bank, Chairman & MD with IDBI.

• Mr. Vikram S Rathore ED-SIDBI – over 30 years of experience in Commercial & Development Banking

• Ms. Supritha Shetty JGM-ICICI Bank - heads the Rural Risk, Policy and Compliance of ICICI Bank

• Dr. Venkateswara Reddy Cardiologist with a long standing experience in teaching Medicine

• Mr. Harinder Sawhney Executive Director of JM Financial's Private Equity Fund

• Dr. Bala Deepthi Practicing Doctor of Medicine – represents youth on the board of Spandana

• Ms. M. Asha Latha, Head of HR & Admin at Spandana - has earlier worked in Health Administration

• Mr. Vishal Mehta From Lok Capital – rich experience in fund raising, investments and portfolio strategy

Agenda


• Product Suite




Spandana, Key Strengths

Highly Efficient Employee Workforce

Highest productivity per employee; lowest operating cost

in the industry

Strong Management TeamYears of diversified experience

Significant Business Growth Potential

Geographical and product expansion coupled with new

initiatives

Exceptional Financial Performance

4-year PAT CAGR of 56%

Diversified Product Offerings

Continuous development of innovative products

Established Capability to Scale

From 3 to 12 states and portfolio growth of 369%, in two years

Streamlined and EfficientProcesses

High quality asset portfolio(almost Zero Net NPAs)

THANK YOU

for details, contact – Spandana Sphoorty Financial Limited,

Plot No. 79, Vinayak Nagar, Care Crystal, Gachibowli, Hyderabad-500032

Phone: 91 40 4438 6666Fax: 91 40 4438 6640

mail: [email protected]

Lifestyle

SpN corporate PPt