Fusion Micro Finance Limited
Please refer to important disclosures at the end of this report
1
Incorporated in 1994, Fusion Micro Finance Limited (FML) is one of the
youngest companies among the top NBFC-MFIs in India in terms of AUM. FML
is engaged in providing financial services to unserved and underserved section
of society. The company has achieved a significant footprint across India,
where they have extended reach to 2.90 million active borrowers which are
served through its network of 966 branches and 9,262 permanent employees
spread across 377 districts in 19 states and union territories in India, as of June
30, 2022. The company's business runs on a joint liability group-lending
model, wherein a small number of women form a group (typically comprising
five to seven members) and guarantee one another's loans.
Positives: (a) Well Diversified and Extensive Pan-India Presence (b) Technologically
Advanced Operating Model (c) Well-positioned to capitalize on industry tail winds
(d) Stable and Experienced Management Team Supported by Marquee Investors
Investment concerns: (a) A large portion of collections and disbursements from
customers are in cash, exposing company to operational risks (b) Any downturn in
economy can impact GNPA/NNPA ratios (c) Any disruption in sources of funding or
increase in costs of funding could adversely affect liquidity and financial condition
Outlook & Valuation: In terms of valuations, the post-issue P/B works out to 1.9x
adjusted FY22 BVPS and P/E of 168x FY22 Diluted EPS (at upper price band of
the IPO). FML has strong revenue growth (CAGR of 31%) and healthy advances
growth (CAGR of 33%) over 2 years period. Though it posted strong growth in top
lines, it recorded declining profits due to the pandemic, and expansion spending
from FY20 to FY22. Going forward, strong tailwinds in banking sector, uptick in credit
cycle and strong Q1FY23 results of FML, considering all the positive factors, we
believe this valuation is at reasonable levels. Thus, we recommend a NEUTRAL
rating on the issue. Investors may consider investment from a medium to long term
perspective.
Key Financials
Y/E March (₹ cr)
FY’20
FY'21
FY'22
Net Interest Income
329
452
568
% chg
38%
26%
Net profit
70
44
22
% chg
-37%
-50%
NIM (%)
9.8%
10.4%
9.6%
EPS (`)
8.4
5.3
2.6
P/E (x)
43.8
69.3
140.0
P/ABV (x)
2.5
2.4
2.3
RoA (%)
1.6%
0.8%
0.3%
RoE (%)
5.8%
3.5%
1.6%
Source: Company RHP, Angel Research
NEUTRAL
Issue Open: November 02, 2022
Issue Close: November 04, 2022
Offer for Sale: ` 504cr
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 58.1%
Public 41.9%
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: ` 99.1cr
Issue size (amount): ₹ 1,104cr
Price Band: ₹350 - ₹368
Lot Size: 40 shares and in multiple thereafter
Post-issue mkt. cap: * `3,551cr - ** `3,703cr
Promoters holding Pre-Issue: 85.57%
Promoters holding Post-Issue: 58.10%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Fresh issue: ` 600cr
Issue Details
Face Value: `10
Present Eq. Paid up Capital: ` 82.76cr
IPO NOTE
Fusion Micro Finance Limited
November 1, 2022
Fusion Micro Finance Ltd | IPO Note
November 1, 2022
2
Company background
Incorporated in 1994, Fusion Micro Finance Limited (FML) is one of the youngest
companies among the top NBFC-MFIs in India in terms of AUM. FML is engaged in
providing financial services to unserved and underserved section of society. The
company has achieved a significant footprint across India, where they have
extended reach to 2.90 million active borrowers which are served through its
network of 966 branches and 9,262 permanent employees spread across 377
districts in 19 states and union territories in India, as of June 30, 2022. The
company's business runs on a joint liability group-lending model, wherein a small
number of women form a group (typically comprising five to seven members) and
guarantee one another's loans.
It benefits from a large and diversified mix of 56 lenders comprising a range of
public banks, private banks, foreign banks, and financial institutions. It has second-
highest number of lender relationships among the top 10 NBFC-MFIs in India.
Technology is an integral part of FML's overall business strategy. Through the early
adoption of cloud computing software and emphasis on best-in-class security
practices, it established a foundation in enabling automation and digitalization of
several processes across business functions including customer onboarding,
customer service, loan disbursements, internal audit, and risk management. FML
continues to invest in and upgrade technology platforms and solutions with the
goal of applying a comprehensive "Touch & Tech" model across operations that
focuses on maintaining frequent technology-based communication points that
enhance efficiency and customer experience.
Issue details
The IPO is made up of Fresh issue of ₹600cr and offer for sale of ₹504cr making
the total Issue size of ₹1,104cr.
Pre & Post Shareholding
(Pre-Issue)
(Post-Issue)
Particulars
No of shares
%
No of shares
%
Promoter
7,21,61,216
85.6%
5,84,65,750
58.1%
Public
1,14,54,800
13.6%
4,14,54,614
41.2%
Others
7,10,372
0.8%
7,10,372
0.7%
Total
8,43,26,388
100.0%
10,06,30,736
100.0%
Source: Company, Angel Research
Objectives of the Offer
Rs 600cr proceeds from the fresh issue would be utilized for strengthening the
Capital Adequacy position of the company
Fusion Micro Finance Ltd | IPO Note
November 1, 2022
3
Financial Summary
Income Statement
Y/E March (₹ cr)
FY’20
FY’21
FY’22
Net Interest Income
329
452
568
- YoY Growth (%)
38%
26%
Other Income
64
46
137
- YoY Growth (%)
-29%
201%
Operating Income
393
498
705
- YoY Growth (%)
27%
42%
Operating Expenses
200
220
312
- YoY Growth (%)
10%
42%
Pre - Provision Profit
193
278
393
- YoY Growth (%)
44%
42%
Prov. & Cont.
93
221
369
- YoY Growth (%)
138%
67%
Profit Before Tax
100
57
24
- YoY Growth (%)
-43%
-57%
Provision for Taxes
30
13
3
- as a % of PBT
30%
23%
11%
PAT
70
44
22
- YoY Growth (%)
-37%
-50%
Source: Company, Angel Research
Fusion Micro Finance Ltd | IPO Note
November 1, 2022
4
Balance Sheet (Consolidated)
Y/E March (₹ cr)
FY’20
FY’21
FY’22
Equity
79
79
83
Reserve & Surplus
1,120
1,167
1,255
Total Net worth
1,199
1,246
1,338
- Growth (%)
4%
7%
Financial Liabilities
Debt Securities
400
990
784
Borrowings
2,457
3,325
4,829
Subordinated liabilities
117
117
163
Other Financial Liabilities
55
138
159
Non-Financial Liabilities
Provisions
6
8
7
Other Liabilities
6
13
11
Total Liabilities
4,240
5,838
7,290
Financial Assets
Cash Balances
540
1,215
1,011
Bank Balances
278
120
142
Advances
3,343
4,361
5,918
- Growth (%)
30%
36%
Other Financial Assets
27
33
71
Non-Financial Assets
Fixed Assets
6
18
19
Other Assets
46
91
128
Total Assets
4,240
5,838
7,291
- Growth (%)
38%
25%
Source: Company, Angel Research
Fusion Micro Finance Ltd | IPO Note
November 1, 2022
5
Key Ratios
Y/E March (₹ cr)
FY’20
FY'21
FY'22
Profitability ratios (%)
NIMs
9.8%
10.4%
9.6%
Cost to Income Ratio
51%
44%
44%
RoA
1.6%
0.8%
0.3%
RoE
5.8%
3.5%
1.6%
B/S ratios (%)
CAR
36%
27%
22%
Tier I
33%
26%
20%
Asset Quality (%)
Gross NPAs
1.1%
5.5%
5.7%
Net NPAs
0.4%
2.4%
1.7%
Provision /Avg. Assets
2%
4%
6%
Provision Coverage
65%
57%
69%
Per Share Data (`)
EPS
8.41
5.31
2.63
Diluted EPS
7.03
4.44
2.20
BVPS
144.9
150.6
161.7
ABVPS
144.6
150.4
158.6
Profitability ratios (%)
NIMs
9.8%
10.4%
9.6%
Cost to Income Ratio
51%
44%
44%
Source: Company, Angel Research;
ROA TREE
Y/E March
FY’20
FY'21
FY'22
Interest Income
15.7%
14.2%
14.6%
Interest Expense
8.0%
6.4%
6.8%
Net Interest Income
7.8%
7.7%
7.8%
Other Income
1.5%
0.8%
1.9%
Total Income
9.3%
8.5%
9.7%
Operating Expenses
4.7%
3.8%
4.3%
PPoP
4.5%
4.8%
5.4%
Provisions
2.2%
3.8%
5.1%
Profit Before Tax
2.4%
1.0%
0.3%
Provision for Taxes
0.7%
0.2%
0.0%
ROA
1.6%
0.8%
0.3%
Leverage
3.5
4.7
5.4
ROE
5.8%
3.5%
1.6%
Source: Company, Angel Research;
Fusion Micro Finance Ltd | IPO Note
November 1, 2022
6
Research Team Tel: 022 - 40003600 E-mail: [email protected] Website: www.angelone.in
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