Shares of Fusion Finance crashed over 10 percent to hit 52-week low of Rs 274 per share on September 23 after Investec downgraded the stock to 'sell' from 'hold' and slashed target price to Rs 300 apiece from Rs 500. The downgrade came after the company hinted at a higher estimated credit loss (ECL) provisioning for the second quarter of FY25 as compared to Q1.
Investec analysts said that the profit warning by Fusion Finance signals a "deeper trouble" and this fear may trigger a downward spiral - be it credit downgrade, funding challenges, or loan book decline.
The brokerage firm recommended a quick action on management change and capital raise would be required by the micro-finance lender. They cut FY25/26 PAT estimates by a whopping 102 percent and 22 percent, respectively.
In an exchange filing, the company said that it will make an ECL provisioning of up to Rs 550 crore in Q2FY25, up from Rs 348 crore provision in Q1FY25. The estimated credit loss provisioning, the lender said, may undergo revisions upon finalisation of the Q2FY25 results, including pursuant to the limited review by the statutory auditors.
ALSO READ: Fusion Microfinance to make additional provisioning of up to Rs 550 crore
This comes after the lender's underwhelming performance in the June quarter, where it reported a net loss of Rs 36 crore, in contrast to a profit of Rs 120 crore in the same period last year. The company attributed the setback to its microfinance (MFI) loans, which account for about 24% of its borrowers. Factors such as customer over-leveraging, low attendance at center meetings, customer migrations, and field staff attrition contributed to the decline.
During the quarter, asset quality also worsened noticeably. Gross Non-Performing Assets (NPA) rose to 5.46 percent, up from 2.89 percent in March. Net NPA increased to 1.25 percent, compared to 0.6 percent in March.
Earlier, another brokerage firm - Motilal Oswal had also downgraded the stock to 'neutral', with a price target of Rs 440 per share.
So far this year, shares of Fusion Finance tumbled over 46 percent, significantly underperforming benchmark Nifty 50's 16 percent surge.
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