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Fusion Micro Finance IPO Analysis

Fusion Micro Finance IPO Analysis

Whenever a company needs funds to make investments, debt-repayments, or corporate purposes, they raise money either from the money market or capital market. When the money is raised via public issue of shares in the primary market, then the offer is popularly known as an Initial Public Offering (IPO). Several companies launched their IPOs in November, while others are planning to launch theirs in December. In this blog post, we will be analysing the IPO of one such company – Fusion Micro Finance Ltd., whose IPO closed on 4th November 2022.

About the company

Fusion Micro Finance Limited is a Non-Banking Financial Company-Micro finance Institution (NBFCMFI). It operates in rural area segment of India and provides unsecured loans to rural women and MSMEs for business purposes. These loans incorporate a joint liability mechanism whereby borrowers form an informal group (usually comprising five to seven members) and provide joint guarantees for loan obtained by each member of the group. Fusion Micro Finance Ltd. provide loans to women entrepreneurs with a family income of up to ₹3,00,000. Fusion Micro Finance Ltd. has a market share of 7.1%.

The small-cap micro finance company has a pan-India presence, with 29 lakh active borrowers spread over 377 districts and 19 states and union territories in India. Theseborrowers have an average gross loan ticket size as ₹25,268. It has 9,262 permanent employees.

IPO performance before listing

Fusion Microfinance IPO had a fresh issue of ₹600 crore and an offer for sale of 1,36,95,466 equity shares. The price range of the IPO was ₹350-₹368 per share. Net proceeds of the fresh issue will be used to increase the capital base of the microfinance firm, as per the firm.

Talking about participation, the Initial Public Offering (IPO) of Fusion Micro Finance was subscribed 2.95 times on 4th November 2022, till the last day of subscription. The quota meant for Retail individual investors (RIIs) was subscribed by 51%, while the Qualified institutional buyers (QIBs) was subscribed by 8.59 times. The non-institutional investors category by was subscribed 1.38 times. Fusion Microfinance shares are having a premium (GMP) of ₹5 in the grey market which corresponds to a 2% listing gain. The IPO is likely to be listed on stock exchanges BSE and NSE on November 15th,2022.

Financials: Statement of Profit and Loss (₹ In crores)

Figures in Rs. Crores
 Mar-18Mar-19Mar-20Mar-21Mar-22
Sales 2664947208561,151
Expenses 182172290437676
Operating Profit84322430419476
OPM %32%65%60%49%41%
Other Income 13101750
Interest137254338375496
Depreciation22345
Profit before tax-54681005724
Tax %26%26%30%23%11%
Net Profit-3951704422
EPS in Rs-9.157.718.255.212.58
Dividend Payout %0%0%0%0%0%

Balance Sheet ( In crores)

Figures in Rs. Crores
 Mar-18Mar-19Mar-20Mar-21Mar-22
Share Capital 4462797983
Reserves2145641,1201,1671,255
Borrowings 1,6052,9292,9744,4325,776
Other Liabilities 1095667159177
Total Liabilities1,9683,6114,2405,8387,290
Fixed Assets 5661819
CWIP00000
Investments00000
Other Assets 1,9633,6044,2335,8207,271
Total Assets1,9683,6114,2405,8387,290

Cash Flow Statement ( In crores)

Figures in Rs. Crores
 Mar-18Mar-19Mar-20Mar-21Mar-22
Cash from Operating Activity -597-1,418-749-793-1,641
Cash from Investing Activity 18415201018
Cash from Financing Activity 7411,6315451,4591,418
Net Cash Flow329229-184676-204

Verdict after watching the Fundamentals:

As per the data from CRISIL, company had the sixth lowest gross NPA ratio among the top 10 NBFC-MFIs in India during FY22. The good aspect of diversification from this company can be understood in the State wise AUM mix of the company, which doesn’t have an even a 20% stake holding of any state.

The free cashflow and Interest Coverage Ratio of the company is a thing to worry about, but this also reflects the sectoral trend. The compounded profit growth is also concerning opposite to the sectoral growth and the main concern.

SWOT Analysis

SWOT Analysis

Strengths:

  • Deep penetration in rural India through a strong distribution network
  • Second largest Asset under management (AUM) of ₹7,389.02 among all micro-finance NBFCs
  • High number of customers
  • Well diversified loan portfolio among different states and districts

Risks:

  • High concentration in rural credit services

Opportunities:

  • Industry growth looks promising. The loan portfolio is expected to grow at a compounded annual growth rate of 20-22% for the next 3 years.
  • Under penetration of rural credit in India

Risks:

  • Competitors have high market share: –

Credit access Grameen Ltd. – 12.7%

Satin Creditcare Network Ltd. – 6.2%

Spandana Sphoorty Financial Ltd. – 5.4%

  • Credit history of borrowers cannot be properly assessed. So, risk of default is high.
  • Subject to seasonality – High borrowing during quarter 3 and quarter 4 due to harvesting season

Please do let us know in the comments, if you were alloted the IPO, or missed out and thinking to buy it as an investment asset.

Our blogs are made for educational purposes only, and we do not provide investment recommendations. We are not SEBI-registered advisors and do not accept cryptocurrency payments. We present publicly available facts and data, not favoring any company.

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