Fusion Micro Finance IPO opens: Here’s what brokerages say about the issue

Incorporated in 1994, Fusion Micro Finance is engaged in providing financial services to women entrepreneurs belonging to the economically and socially deprived section of society.

The issue consists of issuance of fresh equity shares worth Rs 600 crore, whereas existing shareholders and promoters of the company will offload 1,36,95,466 equity shares via offer for sale (OFS).

Promoters Devesh Sachdev Devesh Sachdev, Creation Investments Fusion, Creation Investments Fusion and Honey Rose Investment, along with Mini Sachdev, Oikocredit Ecumenical Development Cooperative will participate in the OFS.

The New Delhi-headquartered shadow lender’s issue can be subscribed till Friday, November 4 with a bid of minimum of 40 equity shares and then in multiple thereof.

The net proceeds from the fresh issue will be used towards augmenting its capital base to meet future capital requirements, the lender has said.

The company has reserved 50% of shares of qualified institutional buyers, whereas non-institutional investors will get 15% of shares. The remaining 35% of shares have been allocated to the retail bidders.
, CLSA India, , are the lead managers to the issue, whereas Link Intime India has been appointed as the registrar to the issue.

Fusion Micro Finance mobilised Rs 331.2 crore through anchor book ahead of its IPO launch by allotting 89.99 lakh equity shares at Rs 368 apiece to 17 investors, the company said in a filing on BSE.

Nomura Trust,

, Nippon Life, Aditya Birla Sun Life Trustee, Massachusetts Institute of Technology, and various domestic mutual funds and insurance companies participated in the anchor book.

Brokerage firms remain mixed over the counter. Here’s what they said:

• Nirmal Bang Institutional Equities
• Rating: Subscribe

Fusion has grown its AUM at a CAGR of 37% over FY20-22 to emerge as one of the fastest amongst listed financials. With a low base, the runway for accelerated growth has decent scope over the next 3-5 years, said the brokerage.

Despite Covid, Fusion has managed its asset quality well by restricting GNPA and NNPA below 6% and 3% over FY21 and FY22. Fusion’s metrics are similar to those of the largest listed MFI players while valuations are at a steep discount, it said, with a ‘subscribe’ rating.

Fusion has optimized cost of funds, liquidity requirements and capital management over the years in challenging market conditions, led by prudent liability management, ability to secure sufficient and diversified borrowings on competitive terms and improved credit ratings, the brokerage said.

“In view of well diversified and extensive pan-India presence, proven execution capabilities with strong rural focus, a knack for quick adoption of technology access to capital, effective asset liability management and valuation comfort, we recommend a ‘subscribe’ rating to the issue,” it added.

• Angel One
• Rating: Neutral

It has posted strong revenue (CAGR of 31%) and advances growth (CAGR of 33%) over 2-year period. Though it posted strong growth in topline, it recorded declining profits due to the pandemic, and expansion spending from FY20 to FY22, said the brokerage firm.

Strong tailwinds in the banking sector, uptick in credit cycle and strong Q1FY23 results of FML, we believe the valuation is at reasonable levels. Thus, we recommend a ‘neutral’ rating on the issue, it added. “Investors may consider investment from a medium to long term perspective.”

• ICICIDirect Research
• Rating: Not Rated

Fusion Micro Finance is a strong player in a sustainably and well growing MFI sector with healthy growth and operational performance, the brokerage said.

Competition from other MFIs, banks and financial institutions and increase in NPAs are key risks. Apart from this, substantial collections and disbursements in cash expose the company to operational risks.

• Securities
• Rating: Subscribe for listing gains

They have increased market share substantially from below top 10 to 2nd largest in the MFI Industry. They are widely diversified among industries. Asset quality of the company is also strong with sufficient provisioning, it said.

“Company’s profitability was declining in past years due to COVID impact. On valuation front, it is available at P/BVPS of 2.28x in FY2022 whereas industry average stands at 2.5x which appears fairly priced,” it added, recommending subscribing for listing gains.

The company works with a strong focus on rural areas and has a well-diversified and extensive pan-India presence. The company also has access to diversified and recognised sources of capital and has a good financial track record, it said.

“This company’s margins are now in declining mode and it is facing risk due to the category of borrowers it serves; an increase in the level of NPAs could also be a concern for the company,” it added with a subscribe rating, but only for high risk investors and with a long term view.

Fusion MF plans to be a low-cost, lean and efficient pan-India MFI by focusing on advanced technology, expanding distribution network, entering new markets and customers, said the broking firm, which remains neutral on the issue.

“On the financials front, the company has seen decent revenue growth of 28% CAGR over FY20-22 while profit de-grew by 44% CAGR between FY20-22 due to increase in expenses,” it added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)