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-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 | |
| Sales | 266 | 494 | 720 | 856 | 1,151 |
| Expenses | 182 | 172 | 290 | 437 | 676 |
| Operating Profit | 84 | 322 | 430 | 419 | 476 |
| OPM % | 32% | 65% | 60% | 49% | 41% |
| Other Income | 1 | 3 | 10 | 17 | 50 |
| Interest | 137 | 254 | 338 | 375 | 496 |
| Depreciation | 2 | 2 | 3 | 4 | 5 |
| Profit before tax | -54 | 68 | 100 | 57 | 24 |
| Tax % | 26% | 26% | 30% | 23% | 11% |
| Net Profit | -39 | 51 | 70 | 44 | 22 |
| EPS in Rs | -9.15 | 7.71 | 8.25 | 5.21 | 2.58 |
| Dividend Payout % | 0% | 0% | 0% | 0% | 0% |
Balance Sheet (₹ In crores)
| Figures in Rs. Crores | |||||
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 | |
| Share Capital | 44 | 62 | 79 | 79 | 83 |
| Reserves | 214 | 564 | 1,120 | 1,167 | 1,255 |
| Borrowings | 1,605 | 2,929 | 2,974 | 4,432 | 5,776 |
| Other Liabilities | 109 | 56 | 67 | 159 | 177 |
| Total Liabilities | 1,968 | 3,611 | 4,240 | 5,838 | 7,290 |
| Fixed Assets | 5 | 6 | 6 | 18 | 19 |
| CWIP | 0 | 0 | 0 | 0 | 0 |
| Investments | 0 | 0 | 0 | 0 | 0 |
| Other Assets | 1,963 | 3,604 | 4,233 | 5,820 | 7,271 |
| Total Assets | 1,968 | 3,611 | 4,240 | 5,838 | 7,290 |
Cash Flow Statement (₹ In crores)
| Figures in Rs. Crores | |||||
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 | |
| Cash from Operating Activity | -597 | -1,418 | -749 | -793 | -1,641 |
| Cash from Investing Activity | 184 | 15 | 20 | 10 | 18 |
| Cash from Financing Activity | 741 | 1,631 | 545 | 1,459 | 1,418 |
| Net Cash Flow | 329 | 229 | -184 | 676 | -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
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.
