Fusion Micro Finance (Fusion), which made its debut at Dalal Street in November 2022, is headed for a strong upside, believe analysts from select brokerage. After its quarterly earnings for the period ended on December 31, 2022, brokerage firms suggest a 50 per cent upside potential in the stock.
Brokerage firms, tracking the counter, believe that the microfinance company posted an all-round show as its profitability remained robust and will be benefiting from sectoral tailwinds. Majority of them remain positive on the company.
Fusion reported a net 52 per cent rise in the interest income at Rs 420.24 crore in the December 2022 quarter, which was Rs 276.93 crore in the December 2022 quarter. The company reported a manifold rise in profit after tax at Rs 102.46 crore for the quarter ended December 31, 2022.
Fusion reported a 45 per cent year-on-year (YoY) growth in Asset under Management (AUM) to Rs 8,653.56 crore, with net NPAs coming in below one per cent. Disbursements grew 22.16 per cent YoY to Rs 2,188.28 crore with an increase in borrower base to 34 lakh.
Fusion’s financial performance was once again the best in NBFC MFI space as reflected in it sustaining more than 4 per cent return on assets (RoA) and 20 per cent return on equity (RoE) in each of the 3 quarters of FY23 so far, said ICICI Securities in its recent report.
This is an outcome of its diversified operations with no single state contributing over 20 per cent of AUM, the rural portfolio accounting for 93 per cent, quality underwriting, proactive risk management and deep understanding of
demographics in states where it operates, it said.
Company continued to invest towards distribution expansion, which ensures sustainability of high growth in the near term. Collection efficiency at 109.5 per cent in Q3FY23 in the new book, and standard restructured book of only 30 basis points would keep credit cost at manageable levels, it added with a buy rating and a target price of Rs 600.
Fusion Micro Finance had raised Rs 1,104 crore through its initial stake sale in November 2022 as the company sold its shares in the range of Rs 350-368 apiece. Incorporated in 1994, Fusion Micro Finance is engaged in providing financial services to women entrepreneurs belonging to the economically and socially deprived section of the society.
Fusion reported a strong all-round quarter with strong AUM growth, healthy operating profits despite steady NIMs; and improvement in asset quality. Majority of the AUM growth was driven by customers additions while average outstanding increased marginally to Rs 24,800, said JM Financial.
Fusion is set to benefit from cyclical tailwinds in the sector as it exits turbulence caused by Covid-19 over the past couple of years and NBFC-MFI as a class see expansion of market share versus banks, it said with a buy rating and target price of Rs 570 for the stock.
“FusionтАЩs stable management, focus on technology with respect to driving efficiencies and ability to grow borrower base faster than peers should hold the company in good stead as the sector enters a sweet spot with respect to growth and asset quality,” it added.
Fusion Micro Finance was trading about 2 per cent lower at Rs 400 on Tuesday and the stock had settled at Rs 409.65 on Monday. ICICI Securities expects a 50 per cent rally in the stock, whereas JM Financial’s target is 42.5 per cent higher.
Fusion is among the youngest large MFI players in India. Starting as a regional player, it has scaled up its network to 19 states across India with a rapid branch expansion strategy. Over the next two years, it is poised to benefit not only from the microfinance recovery cycle in India but also from the spread of deregulation that came about in 2022, said CLSA.
“We expect Fusion to deliver 25 per cent AUM Cagr over FY22-25 with average RoA and RoE of 4.7 per cent and 20 per cent, respectively over the next two years. It is well-capitalized for its medium-term growth ambitions,” it said in its maiden report launched on January 31, 2023 with a buy rating and a target price of Rs 570.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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