Fusion Micro Finance Q1 Results Review- NIM Expansion Continues But Credit Costs Still Elevated: Motilal Oswal

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Motilal Oswal Report.Fusion Micro Finance Ltd.’s Q1 FY24 profit after tax grew 60% YoY to ~Rs 1.2 billion, aided by net interest margin expansion and higher other income. Net interest income increased by 59% YoY to ~Rs 2.95 billion, while pre-provision operating profit grew ~96% YoY to Rs 2.35 billion. The cost-to-income ratio stood at ~36% (previous year: ~45%). Net credit costs (annualised) remained high and rose ~10 bp QoQ to 3.3%.  Disbursements grew 15% YoY to Rs 22.8 billion, driving assets under management growth of 31% YoY/5% QoQ to ~Rs 97 billion. Fusion has transmitted higher borrowing costs to customers and also benefitted from the spread deregulation that was announced in March 2022. Net interest margin expanded by ~30 bp QoQ in Q1 FY24 and we expect this margin expansion to sustain over the next two years, with NIM of 13.8%/14% in FY24/FY25. We increase our FY24/FY25 EPS estimates by ~2%/3% to factor in higher other income.We model an assets under management and profit after tax compound annual growth rate of 28% and 39% over FY23-FY25E, respectively, driven by strong borrower additions, NIM improvement, operating leverage and moderation in credit costs. These factors will also lead to an improvement in the return ratios and we estimate return on asset/return on equity of ~5.7%/23% in FY25. Fusion currently trades at 1.8 times FY25E price/book value and we believe its valuations would re-rate as it demonstrates healthy execution on loan growth and asset quality. Maintain 'Buy' rating with a target price of Rs 740 (based on two times FY25E price/book value). Key risks include:Political interference, announcement of loan waivers or natural calamity resulting in asset quality deterioration;regulatory changes toward asset recognition and provisioning; andincrease in competitive intensity leading to NIM compression..Click on the attachment to read the full report:.Indostar Capital Finance Q1 Review - Disbursement Momentum Better; Asset Quality Improving: Motilal Oswal.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

Fusion Micro Finance Q1 Results Review- NIM Expansion Continues But Credit Costs Still Elevated: Motilal Oswal

Stable disbursement momentum; Q1 FY24 return on asset/return on equity at 5%/20%.

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