Fusion Micro Finance Limited - IPO - Fusion of Growth with Micro Financing

By Mr. Arafat Saiyed, Senior Research Analyst at Reliance Securities.

About the Company

Fusion Micro Finance (Fusion) is 2nd largest player in Micro Finance sector as of Mar'22, which primarily caters to women entrepreneurs who are from economically and socially deprived section of the society. In addition to the financial support the company also aids its clients to manage their finances through financial literacy. The company is coming out with an IPO comprising of fresh issues of ~16.3mn shares and OFS of ~13.7mn shares, aggregating to a total issue size of ~Rs11bn. The company will utilize the funds to augment its capital base.

Unique Business Model

The company runs on a joint liability group-lending model, in which a small number of women form a group, typically comprising five to seven members and guarantee each others' loans. Fusion has the fourth fastest gross loan portfolio CAGR of ~54% between FY17-21 among the 10 largest NBFC-MFIs in India. The company's growth was aided by its customer centricity approach, strategic geographic diversification with a rural focus, technology adoption, good corporate governance, prudent risk management and support from marquee investors during a challenging macroeconomic environment.

Pan-India Footprint

The company provides its services across the country with a network of 966 branches and 9,262 employees spanning 377 districts in 19 states and union territories in India, as of Jun'22. It reached ~2.9mn active borrowers during the period. It continues to focus on diversification and strategic management of state concentration risk with expansion into underpenetrated rural areas that offer significant growth opportunities. Its expansive geographical distribution network allows it to offer "last-mile" connectivity to its customers in remote rural areas.

Focus on Technology

The company has embraced technology through the adoption of cloud computing software and enabling automation and digitalization of several processes across business functions including customer on-boarding, customer service, loan disbursements, internal audit, and risk management. It continues to focus on its technology platforms and solutions through a comprehensive "Touch & Tech" model across operations, with efficiency and customer experience in the forefront.

Financials

The company has a large and diversified mix of 56 lenders comprising a range of public banks, private banks, foreign banks and financial institutions, as of Jun'22. Fusion is one of the fastest growing NBFC-MFIs in India with AUM of Rs73.9bn as of 1QFY23 from Rs67.9bn as of FY22. The company posted a total income of Rs11.5bn, Rs8.6bn and Rs7.2bn during FY22, FY21 and FY20 respectively. Its net profit declined to Rs218mn in FY22 from Rs439mn in FY21 and Rs696mn in FY20, mainly due to higher provisioning on account of the pandemic, natural calamities, and branch expansions.

Our View

Based on FY22 annualized earnings, the company is valued at 2.8x P/BV. 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 improving credit ratings. 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' to the issue.

Source : Equity Bulls

Keywords

FusionMicroFinance IPO Review RelianceSecurities