Buy Fusion Micro Finance; target of Rs 800: ICICI Securities

ICICI Securities research report on Fusion Micro Finance

Fusion Microfinance (Fusion) has sustained its strong financial performance in Q2FY24, as reflected in it sustaining ~5% RoA and >20% RoE during the past six quarters with AUM crossing INR 100bn mark. However, collection efficiency (ex arrears) at ~95.5% is one of the lowest within the MFI space and management attributes lower collections to some challenges it has faced in states like Punjab, Haryana, Rajasthan and Gujarat. It is cognisant of lower collections and would recalibrate its strategy in these states. Credit cost during Q2FY24 remained elevated at >3% owing to higher flow forwards. Management guided for <3% credit cost in FY24 as it expects collections to improve in H2FY24.

Outlook

Considering RoE sustaining at 20% despite credit cost headwinds and likely improvement in collection going forward, we maintain our BUY rating with an unchanged target price of INR 800; we value the stock at 2.5x Sep’24E BVPS.