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Fusion Micro Finance Ltd : Subscribe

Incorporated in 2010, Fusion Micro Finance has the fastest gross loan portfolio CAGR of 37% between FY20-22 among listed NBFC-MFIs in India. As of June 30, 2022 its total AUM was Rs. 7,389 Cr of which 91% is represented by rural areas. Its robust underwriting processes have resulted in healthy portfolio quality indicators with GNPA/NNPA at 3.7%/1.4% resulting in healthy ROA/ROE of 4.2%/21.8% for Q1FY23.

Objects and Details of the Issue: The public issue consists of Offer For Sale of ~Rs. 504 Cr by Promoters and investors as well as Fresh Issue of Rs. 600 Cr to be utilized towards augmenting the capital base.

Investment Rationale:

* Well Diversified and Extensive Pan-India Presence

* Access to Diversified Sources of Capital

* Robust Underwriting Process and Risk Management Policies

* Stable and Experienced Management Team Supported by Marquee Investors

* Proven Execution Capabilities with Strong Rural Focus

Valuation and Recommendation:- Fusion has grown its AUM at a CAGR of 37% over FY20-22, one of the fastest amongst listed financials. With a low base of Rs. 7,389 Cr in AUM, the runway for accelerated growth has decent scope over the next 3-5 years. Despite covid, Fusion has managed its asset quality well by restricting GNPA/NNPA below the 6%/3% mark over FY21 & 22. Fusion is well placed to deliver ROA/ROE in excess of 4%/20% on a sustained basis barring any unforeseen event which hampers the micro finance industry every few years. Fusion’s metrics are similar to those of the largest listed MFI player viz CreditAccess, while Fusion’s valuations are at a steep discount of 45% in comparison. We recommend to ‘Subscribe’ to the issue.

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