Shares of Fusion Micro Finance Ltd crashed on Wednesday as the stock was locked in the lower circuit limit of 20 per cent to Rs 346.80 per share since the beginning. The microfinance player not only reported losses in the quarter but its asset quality also deteriorated sharply. The stock faced multiple downgrades and cuts in the target price.
Shares of Fusion Micro Finance have nearly halved their value in little more than 7 months, crashing from Rs 674 hit on January 31, 2024. The stock breached its IPO issue price of Rs 368. The company was listed at the bourses in November 2023, when it raised a total of Rs 1,104 crore via its initial stake sale.
Fusion Finance suffered a Rs 36 crore net loss in the first quarter of fiscal year 2024-25 on account of higher provisions following a spurt in bad loans, while it had reported a net profit of Rs 120.5 crore in the year ago period.
Microfinance lender’s credit cost jumped to 3.38 per cent for the reported quarter, against 0.88 per cent a year ago. Credit Cost signals the share of provisions as a percentage of on-book loan portfolio. Similarly, its gross non-performing assets (NPA) ratio rose to 5.46 per cent at the end of June from 3.2 per cent a year earlier.
Q1FY24 was difficult for Fusion Micro Finance as the sharp deterioration in asset quality led to higher provisions, resulting in net loss, said Anand Rathi Shares & Stock Brokers. Key concerns highlighted by management, which pressured asset quality, were high customer leverage, JLG discipline, customer migration, lower collections and field attrition, it said.
“We believe these issues could hurt near-to-medium-term asset quality and keep earnings subdued. We, thus, lower our recommendation to a ‘hold at a lower 12-month target price of Rs 520 1.5 times P/BV on the FY26e book, Anand Rathi added, citing less-than-expected AUM book growth and higher slippages from the MFI book as the key risks.
Adding to the woes, the microfinance institution stopped disbursing loans in 104 branches out of some 1400 to prevent further slide in asset quality while it tightened the new customer acquisition criteria.
Fusion Finance posted a loss in Q1FY25, despite a steady operating performance, as stage-3 assets rose to 5.46 per cent, against 2.89 per cent in Q4FY24, said InCred Equities in its report. “The extent of over-leveraging is a concern as borrowers, comprising 25 per cent of the FY24 loan book, are having loans from borrowers against 6 per cent in FY23,” it said.
“We had downgraded Fusion Micro Finance rating to ‘hold’ last quarter amid elevated concentration risks. We cut our estimates by 8.6 per cent and 10.4 per cent for FY26F and 27F, respectively and lowered target price to Rs 450 (from Rs 570 earlier) or 1.1 times FY26F BV,” InCred added.
However, not everything was gloomy in the balance sheet. Its pre-provisioning operating profit (PPOP) stood 26.5 per cent higher YoY at Rs 298 crore, backed by 25.5 per cent expansion in assets under management to Rs 12,193 crore. Total income for the quarter rose 28 per cent YoY to Rs 707 crore. Its net interest margin (NIM) improved 75 basis points to 11.64 per cent in Q1.
The macro economic environment seems to have accentuated the problem in 1QFY25. We too will monitor the situation closely but remain wary of calling the evolving situation as just ‘transitory’. Over-leveraging of customer cohorts typically manifests itself in asset quality stress over longer periods, which has been seen until now, said Motilal Oswal Financial Services.
“Fusion, in our view, can deliver an AUM CAGR of 23 per cent and PAT CAGR of 20 per cent over FY24-FY26E. We estimate RoA and RoE to decline to 3.4 per cent and 14 per cent in FY25, respectively. With no respite in sight, we downgrade to ‘neutral’ with a revised target price of Rs 440,” it added.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
