fusion microfinance share price has been trading in a range between Rs.19 and Rs.20 for a few days now. The price has been on a downward trend which has led to some concerns among investors. But the stock has been able to bounce back after the news of a merger was released on Wednesday.
Asset quality is good
Founded in 1994, Fusion Microfinance is one of the youngest non-banking financial companies in India. It is targeted at unserved women in rural areas and provides financial services to them.
Fusion Microfinance is promoted by a group of professionals having more than a decade of experience in the microfinance sector. The company has a network of 970 branches in 377 districts across 19 states and 54% of its assets under management are in BiMaRU states.
The company’s core business model involves lending to borrowers in the NBFC segment, mainly to individuals and small enterprises. Its loan portfolio is primarily for agricultural and business activities. A large portion of Fusion’s loans are for women borrowers. The company has around 10,000 employees. It follows a joint-liability group model for its MFI business. The company is backed by private equity major Warburg Pincus.
The company has developed adequate risk management systems. The company’s assets under management grew at a compound annual growth rate of 32%. In the year ended March 2022, Fusion collected Rs 4,648 crore in cash. Fusion’s net interest margin stood at 8.4%. Its provision coverage ratio was 96%.
The company’s credit rating is A-. This is lower than the peer Spandana’s A rating. The company’s gross and net non-performing assets are 1.35% and 3.7 percent, respectively. The company’s asset quality is still far from pre-pandemic levels.
The company’s portfolio has improved since the June FY22 quarter. However, the company’s gross non-performing assets stood at 253 crore on June 30. The company had to downsize its book in the past two fiscals due to unfavourable business conditions. The company has reduced its delinquencies and has a provision coverage ratio of 96.
Competition from other MFIs, banks and financial institutions may adversely affect business & earnings
Increasing competition from banks and financial institutions, as well as the increasing client loan burden, are threatening the future of the microfinance industry. Having an understanding of market forces is essential to ensuring the long term sustainability of MFIs. The good news is that NBFC-MFIs are expected to grow at a CAGR of between 18 and 22 percent over the next few years. NBFC-MFIs need to follow the Financial Inclusion and Development Department’s directions to the letter in order to reap the benefits of this industry growth.
To achieve the above mentioned feat, the NBFC-MFI will need to enrol in a self-regulatory organization or at least follow the guiding principles of a Fair Practice Code. This will allow the NBFC-MFI to focus on the important things, such as social mobility and financial inclusion. This will also help it achieve better resource utilization, which will inevitably translate to higher returns.
One of the most important factors influencing the success of a NBFC-MFI is the quality of its disclosures. Keeping in mind the need for disclosures, the NBFC-MFI should also keep in mind the importance of a good corporate governance system. This will help it achieve its vision of providing financial services to underserved populations. The NBFC-MFI should also do a comparison shopping on the same to determine the best pricing and products available in the market. This will help the NBFC-MFI to make the right choices and earn a spot in the long line of MFIs that have successfully navigated the NBFC-MFI landscape.
The following are some of the NBFC-MFIs that have been identified to date. The NBFC-MFIs have been classified into five distinct groups.
IPOs (initial public offerings) are a great way to get your foot in the door of the equity market. They allow companies to raise money to grow and expand, and they give public investors the chance to own shares. However, it’s important to understand the process, and the requirements of participating in an IPO.
An IPO typically includes a large amount of private investors, including institutional investors and accredited investors. These investors are typically the ones who receive the biggest allocations of the stock. The size of an allocation depends on the deal, and varies by investor type.
There are two main types of IPOs. There are “master limited partnerships” and “business development companies.” In an issue based on a business development company, there are usually more retail investors. In a master limited partnership, the retail investors have a smaller allocation, but they have a better chance of receiving their share.
An IPO also has a number of different types of investments, including “anchor investors” who are guaranteed to buy all of the shares. These investors include companies such as HDFC Life Insurance Company, Kotak Mahindra Life Insurance Company, ICICI Prudential Mutual Fund, and Nomura.
The biggest advantage of an IPO is the opportunity it provides for the company to raise money. The company may be able to get better terms for borrowing money, or increase its capital base. However, it’s important to keep in mind that the overall demand for shares may outweigh the supply coming to the market. This can put downward pressure on the stock price.
A good IPO will also have a high bid-to-list ratio, which means that investors are willing to bid for a higher number of shares than is actually offered. This is an important indicator, as it means that there are more investors interested in the stock.
Earlier this year, Fusion Microfinance, one of the leading NBFC MFIs in the country, launched an IPO worth over Rs1,100 crore. It received oversubscription of 2.95 times, but its share price has received muted response. This is largely due to the high valuation of the IPO.
Fusion Microfinance offers financial services to women entrepreneurs in rural and peri-urban areas. It operates on a joint liability group lending model. The company offers secured business loans, machinery loans and small value collateral free loans. The company has a strong presence in Pan India.
The company has a network of 966 branches and 9,262 permanent employees. The company has proven execution capabilities. Its strong corporate governance has helped it achieve strong revenue growth. In the past three years, the company’s revenues have grown 26% CAGR. It also has diversified sources of capital. In June 2022, the company’s asset size was Rs7,389 crore. It has effective asset liability management and technology adoption.
The company’s asset quality is not at pre-pandemic levels, but it has improved over the past few years. The company’s net non-performing assets (NPAs) have dropped to 1.4 per cent, while gross non-performing assets (GNPAs) have reduced to 3.7 per cent.
While its margins have declined, Fusion Microfinance has reported strong revenue growth. The company has a strong focus on the rural and economically deprived section of the society. The company’s customers are usually small groups of women who ensure one another’s loans.
The company operates on a joint liability group lending model and provides financial services to women entrepreneurs. The company’s loan portfolio is growing rapidly. The company is well positioned to deliver ROA/ROE in excess of 4% and 20%.
Grey market signalling a muted listing
IPO grey market sentiment has been muted for Fusion Microfinance. Although the price band for the IPO was Rs 350 to Rs 368, the grey market expects the listing price to be Rs 375.
The grey market is an unofficial platform for IPO shares. Analysts and investors study the grey market to get an idea of the listing price of a new stock. The grey market is also used to track the performance of certain stocks after they are listed.
The grey market for Fusion Micro Finance is signalling a tepid listing on November 15. A muted investor response is expected to dampen investor enthusiasm, particularly with the high valuation and OFS nature of the IPO.
In addition to the grey market, investors should take a close look at the company’s financial performance, balance sheet, and other pertinent statistics to decide if the IPO is a smart move. Listed NBFCs are facing stiff competition from banks and other MFIs. A rise in NPAs and increased inflation could have a negative impact on the returns.
The grey market for Fusion Microfinance’s IPO is signalling a muted listing, especially when compared to other NBFC-MFIs. Although the IPO has been subscribed well, the subscriber base is still relatively small and the IPO is likely to be a tepid market debut.
Besides, the grey market is a rough and tumble market, so there are no guarantees on the performance of the IPO. It is also worth noting that the grey market is a speculative market. A stock’s listing will depend on a number of factors, including the subscription of qualified institutional buyers (QIBs) and individual investors.
Fusion Micro Finance offers financial services to women in rural areas and peri-urban areas. They have a network of 966 branches and offer loans to a range of clients, including women entrepreneurs. They operate on a joint liability group-lending model. They have good financial ratios and prudent risk management.