Urgent Alert: Unraveling Microfinance Mayhem – Is This MFI Facing a Dire ‘Going Concern’ Crisis?

In August 2023, Fusion Microfinance’s stock peaked at Rs 692 per share, only to fall by 75% to Rs 174 per share, with a current price-to-book value of 0.69X. Despite having a reputable equity promoter, Fusion is struggling amidst a microfinance sector crisis. Deloitte’s November 2024 report highlighted concerns about the company’s viability, noting an increase in gross non-performing assets (GNPA) from 2.9% in March 2024 to 9.4% in September 2024. This GNPA is significantly higher than the sector’s top players.

Crisil reported a spike in annualized credit cost to 16.4% in Q2FY25 from 3.1% in FY24, further worsened by breaches in loan covenants on loans worth Rs 5618 crore, leading to a downgrade by Icra in November 2024. In response, Fusion plans to raise Rs 800 crore through a rights issue, signaling rising financial stress.

Despite these challenges, there have been improvements, such as a reduction in customers with multiple loans and the board’s approval for an equity raise. However, Fusion’s expected financial distress persists, indicating potential further slip into NPA.

The ongoing issues highlight the inherent risks in the microfinance sector. Although Fusion may not be considered a high-quality player currently, clarity in delinquency rates and growth in assets under management could present investment opportunities. The sector’s cyclical nature suggests caution, recommending a watchful approach to Fusion’s future developments.

The article emphasizes this is not investment advice and encourages consulting a financial advisor before making investment decisions.

Original Source: https://www.livemint.com/market/stock-market-news/microfinance-fusion-finances-mfi-warburg-pincus-fusion-finances-stocks-private-equity-11734868799579.html
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Publish Date: 2024-12-23 06:00:00