Fusion Micro Finance IPO to open from November 2-4

Fusion Micro Finance plans to raise up to ₹600 crore through fresh issue of shares in its IPO (initial public offering) that will be open for subscription from November 2 to 4. The IPO also includes an offer for sale of up to 1.4 crore shares by existing shareholders.

The price band for the IPO has been fixed at ₹350-368, and the issue will be open for investment by anchor investors on November 1.

Fusion Micro Finance is the second largest NBFC-MFI in terms of AUM -- coming only after CreditAccess Grameen -- with total assets at ₹7,389 crore as of June 30.

It has a customer base of 2.9 million customers, out of which 93-94 per cent are rural customers, and 25 per cent are new-to-credit. Further, 55-60 per cent of the customer base are existing customers as the company is able to retain 70-75 per cent of the borrowers at the time of renewal, Sachdev told businessline.

The company will use the IPO proceeds to grow the loan book, even as it slows down on branch expansion to allow existing branches to grow and improve on productivity, Sachdev said. The company added 400 branches in FY22 which accounted for 25 per cent of the business as of June.

It has a network of 966 branches and 9,262 employees spread across 377 districts in 19 States and union territories.

Operating metrics

Sachdev said that 3-4 factors led to the company growing steadily, even during the pandemic, leading to its market standing improving to second position  from being the ninth biggest pre-Covid. These include a diversified loan book, an experienced and stable management team that has been with the company for 6-10 years, robust liability management and investment in technological capabilities.

Fusion Micro Finance started operations in 2010 in “perceived difficult markets” such as Uttar Pradesh and Bihar and later expanded to other States. The loan exposure to each State is capped at 20 per cent and to each district at 3 per cent.

The average ticket size is ₹35,000-36,000 with a loan tenure of 18-24 months, which has led to a bulk of the Covid book having already run down, Sachdev said, adding that 90 per cent of current loans were sourced post April 2021 for which the collection efficiency is 99 per cent.

During the pandemic, the company had restructured 2.83 per cent of its loan book or 85,000 borrow accounts, of which only 20 per cent are still remaining, Sachdev said. The net NPA ratio was at 1.35 per cent as of June 30.

Liability profile

Bank loans constitute 83 per cent of the company’s borrowing profile, and NBFCs for 9-10 per cent--much lower than 32 per cent as of FY18. Owing to a bulk of the incremental borrowing being at less than 10 per cent, Fusion Micro Finance’s cost of funds have fallen to 10 per cent from 15-16 per cent a few years back, Sachdev said.

Taking into account the IPO equity infusion and accrued profits, the company is hopeful of an upgrade from the current rating of ‘A-’. It posted a PAT of ₹75 crore for Q1FY23 and ₹21 crore for FY22.

Investment in technology is currently at 0.3 per cent of AUM and the outlay is increasing every year. However, the end-to-end automation for loan processing has led to the disbursement turnaround time falling to 4.5 days from 12 days, Sachdev said.

Operating costs for the company stood at around 5.5 per cent, taking into account the aggressive branch expansion. However this is expected to reduce as efficiencies improve, Sachdev said, adding that the cost to income was at 44 per cent.

Fusion Micro Finance also offers emergency ‘hospi cash’ cover to its borrowers, and has a small MSME portfolio which stood at around ₹200 crore.

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