Buy Fusion Microfinance; target of Rs 740: Motilal Oswal

Motilal Oswal is bullish on Fusion Microfinance recommended buy rating on the stock with a target price of Rs 740 in its research report dated August 04, 2023.

Broker Research

August 06, 2023 / 22:10 IST

Buy

26 Aug, 2025 12:21

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Motilal Oswal's research report on Fusion Microfinance

FUSION’s 1QFY24 PAT grew 60% YoY to ~INR1.2b, aided by NIM expansion and higher other income. NII increased by 59% YoY to ~INR2.95b, while PPoP grew ~96% YoY to INR2.35b. The cost-to-income ratio stood at ~36% (PY: ~45%). Net credit costs (annualized) remained high and rose ~10bp QoQ to 3.3%. Disbursements grew 15% YoY to INR22.8b, driving AUM growth of 31% YoY/5% QoQ to ~INR97b. FUSION has transmitted higher borrowing costs to customers and also benefitted from the spread deregulation that was announced in Mar’22. NIM expanded by ~30bp QoQ in 1QFY24 and we expect this margin expansion to sustain over the next two years, with NIM of 13.8%/14% in FY24/FY25. We increase our FY24/FY25 EPS estimates by ~2%/3% to factor in higher other income. We model an AUM and PAT CAGR of 28% and 39% over FY23-FY25E, respectively, driven by strong borrower additions, NIM improvement, operating leverage and moderation in credit costs. These factors will also lead to an improvement in the return ratios and we estimate RoA/RoE of ~5.7%/23% in FY25.

Outlook

FUSION currently trades at 1.8x FY25E P/BV and we believe its valuations would re-rate as it demonstrates healthy execution on loan growth and asset quality. Maintain BUY rating with a TP of INR740 (based on 2x FY25E P/BV).

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