Target: ₹700

CMP: ₹484.60

Fusion MFI continues to report strong earnings with PAT at ₹133 crore and RoA at 4.7 per cent, mainly led by continued margin expansion and higher fees. However, LLP remains elevated at 4.7 per cent, primarily due to stress in Punjab, specific PCR build-up, and incremental management overlay of ₹20 crore.

The management does not expect any further impact from Punjab, if the collection efficiency holds up at about 75 per cent and improves gradually in due course. Fusion MFI will continue to build management overlay, which now stands at 0.5 per cent of AUM, to withstand any future asset quality disruption. Separately, Company plans to change its name to Fusion Finance from Fusion MFI, thus reflecting its portfolio diversification strategy.

Factoring some growth moderation and asset quality noise amid the ongoing elections, we lower our target multiple to 1.7x FY26E ABV (earlier 2x Dec-25E ABV), thus arriving at a target price of ₹700/sh (earlier ₹750).

Key risks: Impact on asset quality due to rising micro/climatic disruptions, execution risk in the highly-penetrated South, and stock supply from existing investors as seen across MFI players.

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