Emkay Global Financial's research report on Fusion Micro Finance
Fusion MFI delivered 15% earnings beat with PAT at Rs1.2bn/~5% RoA in Q1, mainly on the back of strong AUM growth (31% YoY), continued margin uptick (+32bps QoQ to 10.9%) and higher fees, partly offset by increased LLP (3.6% of loans), including prudent management overlay. Management has guided for continued strong AUM growth, led by customer growth as well as re-aligning ticket size for vintage customers, while margins are likely to rise, benefiting from the recent increase in lending rates. However, credit cost should remain elevated in the near term due to some impact of floods in Northern India, shoring-up of PCR and change in write-off policy (270 days vs. 360 days) similar to peers.
Outlook
Factoring in strong growth/margin delivery, partly offset by elevated credit cost, we have revised our earnings estimates for FY24-26E by 8-12% and expect Fusion to report a strong RoA/RoE of 4.5-4.9%/19-20%. Thus, we revise our TP upwards to Rs810 (earlier Rs725), valuing the stock at 2.3x its June 25E ABV. We retain our BUY rating on the stock.
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