Buy Fusion Micro Finance For Target Rs 800 - ICICI Securities
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Focus on becoming trusted financial service provider to rural India, sustaining profitability
In its FY23 annual report, Fusion Microfinance (Fusion) has highlighted its commitment towards becoming a trusted financial service provider to rural India and also sustain industry-leading profitability going forward. While microfinance continues to be the core of the business, MSME vertical is gaining strong traction as reflected in INR 2.2bn disbursements in FY23, taking MSME AUM to INR 3bn as on Mar’23. Incremental AUM growth in FY23 remained broad-based with the north region contributing 37% of disbursements, east - 39%, central - 18% and south - 7%. As of Mar 31, ’23, 93% of its total customers and 63.3% of total branches are from rural areas. As per CRIF report, rural markets grew 22% YoY vs 11% for urban market during FY23. Maintain BUY with an unchanged TP of INR 800 as we value the stock at 2.5x Sep’24E BVPS
Women borrowers in India stood at 63mn (28% of total borrowers), growing at 15% over the past 5 years
As per the report by TransUnion CIBIL, the number of women borrowers in India stand at 63mn, representing 28% of total borrowers in the country, and has been growing at 15% CAGR over the last five years. Notably, the share of women borrowers in semi-urban and rural locations grew at 18% CAGR between CY2017-22 vs 14% growth in metro and urban areas. Total 400mn women reside in rural India.
Rising penetration to support 20-22% growth for NBFCs-MFIs
CRISIL Research expects MFI industry to grow at 18-20% CAGR between FY22-25 and NBFCs-MFIs are likely to grow at a much faster rate of 20-22% during the same period. It also expects the overall portfolio size to reach INR 5.0trn by FY25.
Elevated write-offs and slippages, but significantly lower than FY22 levels
Quality underwriting, stable management team and strong rural presence (less vulnerable than urban) have helped Fusion in managing stress asset formation in FY23 as reflected in gross slippage ratio moderating to 2.2% in FY23 vs 6.9% in FY22 and write-offs at 3% in FY23 vs 5% in FY22. Key risks: 1) AUM growth deceleration and 2) stress unfolding higher than anticipation.
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