Reduce Fusion Finance; target of Rs 260: Emkay Global Financial

Emkay Global Financial's research report on Fusion Finance

Fusion Finance had posted disproportionately higher stress/LLP in 1Q, and indicated guiding on incremental LLP after assessing the asset quality trend in 2Q. In an exchange release, the management has indicated higher LLP at Rs5- 5.5bn in 2Q vs Rs3.5bn in 1Q; we believe this could partly be due to upfronting of stress/LLP and, thus, lead to higher net loss in 2Q. Additionally, founder cum MD & CEO Devesh Sachdev has indicated to the Board about stepping down from his executive role and assuming chairmanship once the nomination committee appoints a new CEO. The company has also replaced COO Tarun Mehndiratta, heading MFI, with external hire Sunil Mundra (ex RBL, ICICI Bank) and strengthening its underwriting/collection mechanism.

Outlook

Factoring in the higher than expected NPAs/LLP and the potential impact of elevated stress on growth, we cut FY25E/26E/27E earnings by 86%/30%/22% and resultantly our TP to Rs260/sh (earlier Rs340), rolling over to 0.8x Sep-26E ABV (earlier 1x Jun-26E ABV); retain REDUCE amid higher asset quality/management concern.

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