Shares of this NBFC stock fell 10 percent following the disclosure of increased credit losses for Q2 FY25, with the decline further intensified by a downgrade from brokerage firm Investec.
Share Price Movement
Shares of Fusion Micro Finance Limited hit a 10 percent lower circuit, dropping to Rs.274.7 per share from its previous close of Rs.305.2 apiece. Over the past year, the stock has declined by nearly 54 percent.
Rationale for the Fall
In a filing to the exchanges on Saturday, Fusion Micro Finance Ltd. indicated that it may need to make an Estimated Credit Loss (ECL) provision ranging from Rs.500 crore to Rs.550 crore for the quarter ending September 30, 2024.
The estimated provision is significantly higher than the Rs.348 crore provision made during the June quarter of the current financial year.
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Fusion Finance stated in the filing, “The estimated credit loss provisioning may be revised upon finalization of the Q2 FY25 results.”
Fusion Finance noted that the audit committee was informed of immediate measures taken to tighten credit criteria for new disbursements and to enhance field collections, aiming to improve the company’s asset quality.
Investec Rating
Further adding onto the downfall, International Brokerage and wealth management firm Investec downgraded Fusion Micro Finance Ltd to “sell,” with its price target reduced to Rs.300 per share. The firm noted that while the microfinance sector is currently under stress, Fusion’s credit costs are “way too high.”
The brokerage expects this to affect the entire sector, anticipating that credit costs will remain elevated for all MFI (Micro Finance Institution) players throughout the financial year 2025.
Asset quality significantly deteriorated during the quarter, with Gross NPA rising to 5.46 percent from 2.89 percent in March, while Net NPA increased to 1.25 percent from 0.6 percent in March.
Financial Performance
In its latest financial update, Fusion Micro Finance Ltd reported net sales of Rs.688 crore for Q1 FY25, representing a 1.4 percent decrease from Rs.531 crore in the same quarter last year. The company incurred a net loss of Rs.36 crore for the quarter, compared to a net profit of Rs.120 crore in Q1 FY24, largely due to a significant rise in expenses.
As of August 2024, Fusion Micro Finance Limited has an Asset Under Management (AUM) of Rs.12,193 crore, operating over 1,297 branches across 22 states with a joint-liability group lending model to enhance financial inclusion. However, the company’s asset quality is under pressure, with a Gross NPA of 5.46 percent and Net NPA of 1.25 percent.
Company Overview
Fusion Micro Finance Limited is a prominent microfinance institution in India, dedicated to providing financial services to underserved women entrepreneurs in rural and semi-urban areas.
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Written by – Siddesh S Raskar
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