Fusion Micro Finance IPO Analysis

About the company:
It is a micro finance institution that is providing financial services to unserved and underserved women in rural and peri-rural areas across India.

At Fusion microfinance, lending business is based on a group lending model, catering exclusively to women. A joint liability group (typically comprising five to seven members) provides joint and several guarantees for loans obtained by each member of the group.

Company had the fourth fastest gross loan portfolio CAGR of 53.89% between the financial years 2017 and 2021 making them one of the youngest companies in terms of AUM as of June 30, 2022 and they are the 2^nd largest NBFC-MFIs in India, among the top NBFC-MFIs in India. Company has average outstanding of 25,000 INR per customer and it is lowest in the industry. Company has backing of Warburg Pincus – a marquee investor (Fusion is the only investee in their portfolio in MFI space).

Below table highlights their different products and exposure to products.

Industry growth:

Distribution network of Fusion Micro Finance:
As of June 30, 2022, company’s network is of 966 branches and 9,262 permanent employees spread across 377 districts in 19 states and union territories in India. According to CRISIL, they were ranked first among the top ten NBFC-MFIs in India in terms of highest number of customers per branch and number of customers per employee, during the financial year 2022.

Key parameters of the Company:
According to CRISIL, company had the fourth lowest gross loan portfolio per district among the top ten NBFC-MFIs in India, for the financial year 2022. As a result, as of June 30, 2022, no single state contributed to more than 20% of the total AUM and share of AUM from customers in rural areas represented 91.37% of total AUM. Company collection efficiency has been consistently above 90% post pandemic and as of June 2022, it stands at 95.2%.

For company, the average effective cost of borrowings has been 10.43%, 11.23% and 12.33% for the financial years 2022, 2021 and 2020, respectively and therefore enjoys a rating of “A-” by CRISIL, CARE and ICRA as of June 30, 2022.

Below table helps to understand the diverse liability franchise of the company. Banking share is 83%.

Financials

Key risks
1) Increase in the level of NPAs or provisions may adversely affect business, financial condition, results of operations and cash flows.
2) Company may face various risks associated with large number of branches and widespread network of operations;
3) Certain provisions of the NBFC-ND-SI Master Directions and the RBI (RFML) Directions impose requirements that restricts business, results of operations and growth; and
4) Large portion of collections and disbursements from customers are in cash, exposing to certain operational risks.

Comparison and Basis for issue price

Considering the upper price band of 368 per share, it translates into PE of 139x and PB ratio of 2.15x (based on June 2022 book value of 171 INR).

IPO details and subscription
The IPO starts on 2^nd Nov 2022 and will end on 4^th Nov 2022 with an issue size of Rs. 1,103.99 Cr (600.00 Cr Fresh issue for Augmenting the capital base of the Company and rest offer for sale). The lot size will be 40 shares and a retail investor can apply for a maximum of 13 lots. The price band offered by the company is Rs. 350 - 368 per share. As of 2^nd November 2022, GMP was Rs. 38/share.