Fusion Microfinance Hits Lower Circuit, Here’s Why

Fusion Microfinance Ltd. saw its shares plunge by 20% on Wednesday, hitting a lower circuit after the company’s credit costs for the June quarter exceeded expectations, prompting a downgrade from a brokerage firm. This significant drop has pushed the stock below its IPO price of Rs 368 per share. The company made its debut on the stock market in November 2022.

Disbursement Growth Amid Stagnation

During the June quarter, Fusion Microfinance’s disbursements increased by 31% year-on-year but remained flat sequentially at Rs 2,990 crore. The company’s Assets Under Management (AUM) also saw a 26% year-on-year growth and a 6% increase from the March quarter.

Financial Performance and Losses

Despite the growth in disbursements and AUM, Fusion Microfinance reported a net loss of Rs 36 crore for the quarter. This is a stark contrast to the net profit of Rs 120 crore in the same period last year. The impairment of financial assets nearly tripled from the March quarter, rising to approximately Rs 350 crore from Rs 119 crore.

Deterioration in Asset Quality

The company’s asset quality significantly deteriorated during the quarter. Gross Non-Performing Assets (NPA) increased to 5.46% from 2.89% in March, while Net NPA rose to 1.25% from 0.6% in the previous quarter. Elevated credit costs further impacted the financial performance, with net credit costs reaching nearly Rs 350 crore, far exceeding the estimated Rs 120 crore.

Sectoral Stress and External Challenges

Fusion Microfinance remains vigilant of the asset quality stress that is emerging in the sector. This stress could be exacerbated by the floods affecting various parts of the country, potentially impacting the financial health of microfinance institutions.

Record Single-Day Fall

As a result of these challenges, Fusion Microfinance’s shares are trading 20% lower at Rs 346.4, marking the biggest single-day decline since the company’s listing. The substantial drop highlights investor concerns over the company’s rising credit costs and deteriorating asset quality.

Fusion Microfinance Ltd. faces significant challenges as it grapples with higher-than-expected credit costs and worsening asset quality. The company’s financial health and stock performance will be closely monitored by investors and analysts in the coming quarters.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.