Fusion Finance RI review - (May apply)

•    The company is primarily engaged in to MFI segment.
•    After posting profits for FY23 and FY24, it marked losses for 9M of FY25.
•    Based on its recent financial data and the market trends of its counter, the issue appears aggressively priced. 
•    Well-informed/cash surplus investors may park moderate funds for long term.

PREFACE:
The company came with its maiden IPO for mobilization of Rs. 1103.99 cr. at a price of Rs. 368 per share in the month of November 2022. Now it is coming out with a RI to mobilize Rs. 799.86 cr. at a price of Rs. 131 per share. Based on its recent financial performance and the market trends, the issue appears aggressively priced. No doubt, MFI industry is doing well, and poised for bright prospects ahead, but the latest financial data not auguring well for this company. 

ABOUT COMPANY:
Fusion Finance Ltd. (FFL) - erstwhile known as Fusion Micro Finance Ltd.- is a non-banking finance company (“NBFC”) - microfinance institution (“MFI”) offering microfinance loans to women borrowers from low-income households. It founded the Company with the core idea of creating opportunities at the bottom of the pyramid, and do so by providing financial services to unserved and underserved women in rural and semi-urban areas across India. FFL believes that its network and services have improved accessibility to formal credit at affordable prices, thereby positively impacting the lives of customers in rural India. Its gross AUM was Rs. 10,599.37 crore, Rs. 11,476.08 crore and Rs. 9,296.22 crore as of December 31, 2024, March 31, 2024 and March 31, 2023, respectively.

Over the years, it has scaled AUM by committing to key pillars of growth, comprising customer centricity, strategic geographic diversification with a rural focus, embracing technology for growth, emphasis on nurturing and developing its personnel, good corporate governance, stakeholder management and prudent risk management, as well as ability to raise growth capital through the support of promoters, including Honey Rose Investment Ltd, which is directly owned by certain private equity funds managed by Warburg Pincus LLC, one of FFL’s marquee investors, and Creation Investments Capital Management, an alternative investment management company with a focus on private equity and private credit investments.

Since the inception of its microfinance business in 2010, FFL has prioritized organic geographical diversification and management of state level AUM by expanding into underpenetrated rural areas that offer significant growth opportunities. As a result, it has achieved a significant footprint across India, where it has extended reach to 3.66 million active borrowers which were served through network of 1,506 branches and 15,455 permanent employees spread across 496 districts in 22 states and union territories in India, as of December 31, 2024. The company believes that its significant footprint of active borrowers and branch network puts it in a vantage position to further penetrate and deepen presence in areas in which it has established branch infrastructure but remain relatively untapped and also to expand into new regions that have significant growth potential.

ISSUE DETAILS:
The company is coming out with its Rights Issue (RI) of 61058392 equity shares of Rs. 10 each at a fixed price of Rs. 131 per share to mobilize Rs. 799.86 cr. The RI opens for subscription on April 15, 2025 and will close on April 25, 2025. The company is offering RI in the ratio of 55 for 91 to its eligible stakeholders as of the record date of April 04, 2025. The company is asking for 50% money (i.e., Rs. 65.50 per share on application and the rest by one or more calls as decided by the company from time to time. Post allotment, shares will be listed on BSE and NSE. The company is spending Rs. 16.52 cr. for this RI process, and from the net proceeds, it will utilize Rs. 783.34 cr. for augmenting its capital base. 

This RI is solely lead managed by IIFL Capital Services Ltd. (formerly known as IIFL Securities Ltd.), while MUFG Intime India Pvt. Ltd. is the registrar to the issue. 

Post-RI, company’s current paid-up equity capital of Rs. 101.02 cr. will stand enhanced to Rs. 162.08 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 2123.28 cr. 

FINANCIAL PERFORMANCE:
For the last two fiscals, the company has posted a total income/net profit of Rs. 1799.97 cr. / Rs. 387.15 cr. (FY23) and Rs. 2412.42 cr. / Rs. 505.29 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it posted a loss of Rs. 1059.98 cr. on a total income of Rs. 1892.90 cr., which is attributed to impairment of financial instruments worth Rs. 1614.81 cr.  

Its net NPA stood at 1.71% as of December 31, 2024, against 0.60% as of March 31, 2024, and the debt equity ratio is at 4.05 against 3.03 for the referred periods, hat raise concern. It’s cost to income ratio of 47.38% also raise alarm.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listings of RI shares based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 543652 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 142.90 on April 03, 2025, and opened on an ex-right basis at Rs. 143.00 on April 04, 2025. Since then, it has marked a high/low of Rs. 143.00 / Rs. 124.90. The scrip last closed at Rs. 134.95 as of April 09, 2025. For the last 52 weeks’ it has posted a high/low of Rs. 525.20 / Rs. 124.90. 

The promoters’ holding has been constant at 57.71% for the last three quarters ended with December 31, 2024. The counter is well managed above the RI price to lure investors.