Stocks to Buy Today: On 8 November 2023, the financial services firm ICICI Securities published the latest research report on Fusion Micro Finance shares, assigning a ‘buy’ rating to the stock. The comprehensive analysis also provides valuable insights into the company’s financial health.
ICICI Securities is Bullish on Fusion Micro Finance and has recommended a ‘buy’ rating on the stock with a target price of Rs 800. Let’s take a closer look at their recommendations for the Fusion Micro Finance share price target set by ICICI Securities.
Fusion Microfinance has continued its impressive financial performance into the second quarter of the fiscal year 2024, demonstrating a robust return on assets (RoA) around 5% and return on equity (RoE) greater than 20% over the last six quarters. Notably, its assets under management (AUM) have exceeded the 100 billion rupee milestone.
However, there’s a note of caution concerning its collection efficiency, which, at about 95.5%, lags behind its peers in the microfinance industry. Fusion acknowledges the challenges in states such as Punjab, Haryana, Rajasthan, and Gujarat, and is recalibrating its strategies to address these issues.
Despite the challenges, Fusion’s credit costs remained higher than usual at over 3% due to increased flow forwards, though the management remains hopeful that this figure will drop below 3% for the fiscal year as it anticipates better collections in the latter half of the year.
Based on the confidence that return on equity will maintain at 20% despite the credit cost pressures and the expectation of improved collections, the decision to maintain a ‘BUY’ rating with a target price of 800 rupees per share is affirmed. This valuation pegs the stock at 2.5 times its estimated book value per share by September 2024.
Growth for Fusion has been primarily driven by new customer acquisitions, a trend that continued into the second quarter. In the first half of the fiscal year, Fusion added approximately 240,000 new customers, which brought the total to 3.69 million borrowers. The AUM grew by 3% quarter-on-quarter, and the outstanding amount per borrower is noted to be one of the lowest in the sector at 27,172 rupees, suggesting a cautious approach to lending.
Disbursements also showed growth, with a 3% increase quarter-on-quarter and indications of even stronger growth in the third quarter. Management is optimistic about achieving a full year AUM growth of over 20%.
The company’s core operating performance remains solid with a profit after tax (PAT) increase of 4% quarter-on-quarter, driven by steady revenue growth and controlled operating costs. Net interest income (NII) rose by 2% in tandem with the AUM growth, and the net interest margin (NIM) expanded by 20 basis points. Despite the expansion of its branch network, operational expenses have been kept in check, maintaining the cost-income ratio almost unchanged.
|Shareholding||Mar ’23||Jun ’23||Sep ’23|
|– Mutual Funds and Others||9.9%||11.2%||10.7%|
|– Insurance Companies||2.9%||2.9%||3.5%|
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