Fusion Finance stock tanks 20%, hits 52-week low on weak Q1 results

The company reported a net loss of Rs 35.62 crore in June 2024 quarter due to higher than usual provisioning.

Shares of Fusion Finance (Fusion Micro Finance) tanked 20 per cent and hit a 52-week low at Rs 346.80 on the BSE in Wednesday's intra-day trade after the firm reported a net loss of Rs 35.62 crore in the June 2024 quarter (Q1FY25) due to higher than usual provisioning. The microfinance institution had posted profit of Rs 120.46 crore in previous year quarter (Q1FY24).

The stock fell below its previous low of Rs 416.20 touched on June 5, 2024. It is seen inching towards its record low of Rs 321.40 hit on the listing day i.e. November 15, 2022. Currently, the stock is trading 6 per cent lower compared to its issue price of Rs 368 per share. It had hit a 52-week high of Rs 674 on January 31, 2024.

 

Till 12:38 pm; a combined 490,000 equity shares changed hands and there were pending sell orders for a combined 1.35 million shares on the NSE and BSE. In comparison, the BSE Sensex was up 0.91 per cent at 79,310.

The management said the company noticed delinquency trends in certain pockets due to over-leverage and external factors. Due to which the company has done early risk recognition and tightened expected credit loss (ECL) model leading to higher than usual provisioning in this quarter that had an impact on overall profitability. However, preprovisioning profits (PPOP) have been in line with consistent performance in the previous quarters and the management expects to go back to the normal course in H2 FY25.

Fusion Finance, Nonbanking Financial Company-Microfinance Institutions (NBFC-MFIs), has an Asset under Management (AUM) of Rs 12,193 crore. The company has been growing consistently with an extensive network of 1,398 branches spread across 22 states including 3 Union Territories, as of 30 June 2024.

In Q1FY25, the company’s PPOP increased by 26.5 per cent year-on-year (YoY) to Rs 297.75 crore from 235.39 crore in Q1FY24. Net interest income (NII) grew 34.85 per cent YoY from Rs 294.07 crore to Rs 396.55 crore. Net interest margin (NIM) rose from 10.89 per cent to 11.64 per cent.

Fusion Finance has witnessed a sharp rise in stage-3 assets to ~5.46 per cent in Q1FY25 as against ~2.89 per cent last quarter. The company’s management has attributed the same to various reasons, including over-leveraging of existing customers, failure of the Joint Liability Group (JLG) model leading to weak collection efficiency, weakness in states like Tamil Nadu, Rajasthan, Odisha, Jharkhand & Madhya Pradesh, higher employee attrition, etc. The company was unable to receive payment from ~55k customers during July 2024.

Analysts at InCred equities said they had downgraded Fusion Finance’s rating to 'HOLD' last quarter amid elevated concentration risks. “We have been highlighting our concerns over the adversities visible in per borrower data since the past few quarters. Fusion Finance has added ~90,000 borrowers during Q1FY25 against 80,000 last quarter. Fusion Finance has added a net ~3,30,000 customers during FY24 against ~8,10,000 additions in FY23, which remains a disappointment. This also indicates that incremental disbursement growth is largely contributed by the rise in loan ticket size,” the brokerage firm said in its result update.

“The macro economic environment seems to have accentuated the problem in Q1FY25. We too will monitor the situation closely but remain wary of calling the evolving situation as just ‘transitory’. Over-leveraging of customer cohorts typically manifests itself in asset quality stress over longer periods, which we have seen until now,” Motilal Oswal Financial Services said.

While this is still an evolving situation, our view is that the current sectoral stress because of high customer-leverage is more broad-based across geographies (rather than being state-specific) and will perhaps linger on for longer than most expectations. Guardrails put in place by MFIN will calibrate the growth in the sector and might bring back normalcy in asset quality/collections, but not before the current stress in the sector has run its course. During this period, credit costs will continue to remain elevated; the brokerage firm said with downgraded the stock to ‘Neutral’.