Fusion Micro Finance IPO final day |Offer subscribed 2.95 times, QIB portion booked 8.59 times

The initial public offering (IPO) of Fusion Micro Finance received decent response from investors as offering subscribed 2.95 times on November 4, the final day of bidding.

Investors have bought 6.30 crore equity shares against an offer size of 2.13 crore shares, data available on exchanges show.

Non-institutional investors, or high-networth individuals, have bid 1.38 times the allotted quota of shares, while retail investors bought 51 percent shares of their portion.

The portion set aside for qualified institutional buyers (QIBs), who play an important role in an IPO, has been subscribed 8.59 times.

Half of the offer is reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 35 percent for retail investors.

For any IPO to get sail through, QIB portion has to get at least 90 percent subscription.

Fusion Micro Finance aims to mobilise Rs 1,104 crore through the issue in a price band of Rs 350-368 a share. The offer comprises a fresh issue of Rs 600 crore and the remaining 504 crore is an offer for sale.

The objective of the fresh issue is to increase the capital base of the company, while the offer for sale money will go to selling shareholders. The offer opened for subscription on November 2.

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Incorporated in 2010, Fusion Micro Finance has the fastest gross loan portfolio CAGR of 37 percent between FY20-22 among listed NBFC-MFIs in India. As of June 2022 its total assets under management was Rs 7,389 crore of which 91 percent is represented by rural areas.

"With a low base of Rs 7,389 crore in AUM, the runway for accelerated growth has decent scope over the next three-five years," Nirmal Bang said.

Despite Covid, Fusion managed its asset quality well by restricting gross non-performing assets and net NPA below the 6 percent and 3 percent mark, respectively, over FY21 and FY 22, the brokerage said.

As of June FY23, gross NPA was at 3.7 percent and net NPA at 1.4 percent, driven by robust underwriting processes, it said.

The healthy portfolio indicators resulted in a good return on assets (ROA) of 4.2 percent and return on equity (ROE) of 21.8 percent for Q1FY23.

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"Fusion is well placed to deliver ROA and ROE in excess of 4 percent and 20 percent on a sustained basis barring any unforeseen event which hampers the microfinance industry every few years," Nirmal Bang said.

Fusion’s metrics are similar to those of the largest listed MFI player CreditAccess, while Fusion’s valuations are at a steep discount of 45 percent in comparison, the brokerage said which favours subscribing to the issue.

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