Fusion Microfinance Q3 Results Review- NIM Expands; Credit Costs Elevated From Punjab Portfolio: Motilal Oswal

Motilal Oswal Report

Fusion Microfinance Ltd.’s Q3 FY24 profit after tax was up 23% YoY but flat QoQ at ~Rs 1.26 billion, missing our estimate by 7% because of high credit costs. For nine months FY24, PAT grew ~37% YoY to Rs 3.7 billion.

Net interest income surged ~34% YoY to ~Rs 3.4 billion (in line), while pre-provision operating profit jumped ~42% YoY to ~Rs 2.6 billion (in line). Net credit costs in Q3 FY24 stood at ~ Rs 940 million, while annualised credit costs rose ~85 basis points QoQ to ~4.0%.

Disbursements grew 24% YoY to Rs 27.1 billion despite calibrating its growth in few geographies and halting disbursements in Punjab since December- 23. Asset under management increased by ~24% YoY to ~Rs 107 billion.

Fusion currently trades at 1.3 times FY26E price/ book value and we believe its valuations could re-rate as it demonstrates credibility around normalisation in credit costs from FY25 onwards.

Maintain 'Buy' with a target price of Rs 720 (based on 1.6 times FY26E P/BV).

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