Fusion Micro Finance had a disappointing debut, with the stock listing at a discount on November 15 and falling further amid declining margins and fear of possible bad loans.
Analysts believe this stock is only for high-risk and the most patient investors as there are a number of risks plaguing the company in the short term.
Satish Kumar, research analyst at Choice Broking, said the company sold its shares at an expensive valuation even when risks to the microfinance sector were higher amid elevated inflation.
“Return ratios of the firm remained depressed due to higher credit cost. Thereby, any unexpected shock on the credit cost front may weigh on return ratios heavily,” Kumar said. Investors who have been allotted the shares should book profit, he said.
The stock opened at a 2.3 percent discount against the issue price of Rs 368. It started trading at Rs 360.50 on the BSE, while the listing price on the NSE was Rs 359.50. The stock closed down 12 percent at Rs 325.
Fusion Micro Finance is among the top 10 microfinance companies in India. It offers loans to women entrepreneurs. Its business runs on a joint liability group-lending model, wherein a small number of women form a group and guarantee one another’s loans.
The company has a strong focus on rural areas with a well-diversified and extensive pan-India presence.
Due to its business model, risks can also be relatively higher in times of higher inflation when economically weaker families are hit the hardest.
Prashanth Tapse, senior vice-president (research), Mehta Equities, also advised allotted investors to book profits and look for better opportunities in the other listed NBFCs.
During the book building, the issue received a muted response from investors on both the institutional as well as the retail sides. The company demanded a price-book (P/B) multiple of 1.8 on a post-IPO basis, whereas its peers like CreditAccess command a P/B of 3.3.
The company management plans to be a low-cost, lean and efficient pan-India by focusing on advanced technology, expanding the distribution network, and entering new markets and customers. Besides, it would focus on enhancing new and adjacent products as per customers' requirement and as well focus on improving financials.
Narendra Solanki, Head- Equity Research at Anand Rathi Shares & Stock Brokers, said investors should hold the issue for the long term.
Pravesh Gour, Senior Technical Analyst, Swastika Investmart, too, said the stock was only for high-risk and long-term investors.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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