Fusion Microfinance Falls 20% on Lower Circuit; Brokerages Downgrades to 'Neutral'

On Wednesday, shares of Fusion Finance Ltd. experienced a 20% decline due to higher-than-expected credit costs for the June quarter, causing the stock to fall below its IPO price of ₹368 per share. By 10:50 am IST, the Fusion Microfinance Plunges shares were trading at ₹346.4 on the NSE, reflecting a 20% drop with only sellers in the market.

Fusion Micro Finance Ltd reached the lower circuit limit in Wednesday's trade, driven by elevated credit costs, which led the company to withdraw its full-year FY25 credit cost guidance. Investor sentiment was significantly impacted by the revelation that 24% of the company's loan book consisted of borrowers with MFI loans from five or more lenders.

Additionally, the company faced increased gross non-performing assets and rising stress in key states such as Tamil Nadu, Madhya Pradesh, Odisha, Rajasthan, and Jharkhand. Weak disbursement growth, poor customer addition, and losses from higher provisioning further compounded the problem. Consequently, earnings estimates for FY25 were cut by up to 50%, pulling the shares down further.

Fusion Micro Finance reported a net loss of ₹36 crore for the June quarter, compared to a profit of ₹120 crore in the same quarter last year. Asset quality deteriorated, with gross non-performing assets rising to 5.46% from 2.89% in March and net NPAs increasing to 1.25% from 0.6%.

As per InCred Equities, in response to rising default risks, Fusion Micro Finance halted disbursements at 104 branches and tightened customer onboarding criteria, impacting incremental disbursement growth. The collection efficiency fell to 96.3% for the quarter from 98.3% in the previous quarter (excluding Punjab), highlighting the unfavorable lending environment. InCred Equities pointed out the persistent concentration risk, with the top five states accounting for 70.4% of the loan book.

Brokerage company MOFSL added that, in terms of customer addition, Fusion Micro Finance added 90,000 borrowers in the June quarter compared to 80,000 in the March quarter, totaling a net addition of 330,000 customers in FY24 against 810,000 in FY23. This indicates that incremental disbursement growth was largely driven by an increase in loan ticket size. With no positive catalysts in sight, MOFSL downgraded the stock to 'neutral' with a revised target price of ₹440, based on a 1.1x FY26E P/BV valuation.