Barring COVID-like situation, IPO price should yield decent return though foreign private equities’ dominance and Indian promoter’s minuscule stake advise caution!
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FUSION MICRO FINANCE OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 1,104 Cr (2,99,99,814 equity shares) |
| Fresh Issue | Rs 600 Cr (1,63,04,348 equity shares) |
| Offer for Sale | 1,36,95,466 equity shares (Rs 504 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 350–368 |
| Mkt/Bid Lot | 40 Nos. |
| Implied M-Cap | Rs 3,703 Cr (at cap price) |
| Implied Equity Cap | Rs 100.63 Cr |
| Free Float | 31.82% |
| Lead Manager | ICICI Securities, CLSA India, IIFL Securities and JM Financial |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :02-Nov-2022 | Closing :04-Nov-2022 |
| Allotment :10-Nov-2022 | Refunding :11-Nov-2022 |
| Demat Credit :14-Nov-2022 | Trading :15-Nov-2022 |
The Offer
New Delhi registered but Gurugram based Fusion Micro Finance Ltd (FMFL) is entering the capital market with a Rs 1,104 Cr IPO which consists of a fresh issue of Rs 600 Cr (1,63,04,348 equity shares) from the company and an offer for sale of 1,36,95,466 equity shares (Rs 504 Cr) from four promoters and two investor shareholders. The offer is being made through the book-building route with a price band of Rs 350-368 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 40 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Tuesday, November 15, 2022. ICICI Securities, CLSA India, IIFL Securities and JM Financial have been roped in as the lead-managers to the offer. Link Intime Technologies will act as the registrar to the issue. The bidding opens on Wednesday, November 02, 2022 and closes on Friday, November 04, 2022.
The company proposes to utilize the net proceeds from the fresh issue (Rs 600 Cr) towards augmenting its capital base.
Lineage
Originally incorporated as Ambience Fincap Private Ltd on September 5, 1994 by Sanjay Agarwal and Gopal Agarwal the company did not do anything to write about until 2009. The current individual promoter of the company, Devesh Sachdev, who has less than 7% stake in the company, joined FMFL’s board in November 2009 and the company took off under the new banner in 2010.
The individual promoter has in the past held various positions with Citicorp Credit Services India, Samarth Financial Consultancy, BSA Logistics, etc. Under his stewardship FMFL was able to attract investments from private equity funds. The company received its first PE funding from RIF North 2 in 2010 followed by NMI Frontier Fund in 2013, Oikocredit Ecumenical and Belgian Investment Company in 2015, Creation I and Global Impact Funds in 2016. Honey Rose, owned by certain private equity funds managed by Warburg Pincus LLC, staked in 2018 and 2019 and currently holds the largest chunk of 48.65% of the equity capital.
Key Management
The company’s minority promoter, Devesh Sachdev (49), is designated as Managing Director and CEO of the company. He completed his post-graduate certificate in Logistics and Supply Chain Management from XLRI, Jamshedpur and completed the HBS Accion Program on Strategic Leadership in Inclusive Finance from Harvard Business School, USA. He is also the chairperson of the governing board of the Microfinance Institutions Network, an industry association.
Warburg Pincus India’s managing director Narendra Ostawal on the board representing Honey Rose and American citizen Kenneth Dan Vander Weele is the nominee of second big stake holder Creation Investments.
Stakeholders
As on the date of the Red Herring Prospectus, the company has 85 Shareholders of which the three promoter groups collectively hold 85.57%and the two non-promoter selling shareholders have 12%. The balance is held by employees. Post Offer, private equities Honey Rose and Creation will hold 39.37% and 23.72% respectively while individual promoter Sachdev family will have only 5.08%.
Business
FMFL is a microfinance institution which provides financial assistance to unserved and underserved women in rural and peri-rural areas across India. It focuses on women in rural areas with an annual household income of up to Rs 3 lakh. Its microfinance lending business is based on a group lending model. A joint liability group (typically comprising five to seven members) provides joint and several guarantees for loans obtained by each member of the group.
According to CRISIL report, FMFML is one of the youngest companies (in terms of getting an NBFC-MFI licence) among the top NBFC-MFIs in India in terms of AUM as of June 30, 2022. The company also has the fourth fastest gross loan portfolio CAGR of 53.89% between the financial years 2017 and 2021 among the 10 largest NBFC-MFIs in India. At end of June 2022, its aggregate AUM was Rs 7,389 Cr.
In last one decade FMFL has achieved a significant footprint across India extending its reach to 29 lakh active borrowers serving through a network of 966 branches and 9,262 permanent employees spread across 377 districts in 19 states and union territories in India.
Financial Track
In recent years, the company’s top line has registered impressive growth. From less than Rs 500 Cr in fiscal 2019, revenue steadily surged to Rs 1200 Cr in fiscal 2022. Nevertheless, the pandemic played havoc and net profit slumped from Rs 70 Cr in fiscal 2020 to Rs 22 Cr in fiscal 2022 as impairment on loan portfolio shot up from Rs 91 Cr in fiscal 2020 to Rs 220 Cr in fiscal 2021 and Rs 368 Cr in 2022.
In the first quarter of fiscal 2023, as loan impairment dropped to Rs 20 Cr, net profit surged to Rs 75 Cr for the three month period. If this is any indication, the company should post a record profit, much higher than the proposed equity capital of Rs 100 Cr, for whole year. However, though profit has surged, net operating cash flow has remained negative in recent years.
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Fusion Microfin Financials (in Cr) |
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| Period Ended |
Jun-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 | 12 |
12 |
| Revenue |
360 |
1201 | 873 | 730 |
497 |
| EBIDTA |
245 |
526 | 436 | 440 |
325 |
| Interest |
143 |
496 | 375 | 338 |
254 |
| Depreciation |
1 |
5 | 4 | 3 |
2 |
| Tax |
3 |
13 | 59 | 40 |
21 |
| Net Profit |
75 |
22 | 44 | 70 |
51 |
| Equity (Implied) |
101 |
83 | 79 | 79 |
62 |
| Reserves (Implied) |
1922 |
1255 | 1167 | 1120 |
564 |
| Borrowing |
5094 |
4829 | 3325 | 2457 |
2313 |
Valuation
Surely, fiscal 2022 earnings would not justify the IPO cap price of Rs 368. But, if Q1 performance is anything to go by, barring unforeseen circumstances, current year’s full earnings should bring decent returns.
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HOW FUSION MICTRO FINANCE COMPARES WITH PEERS |
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Financials |
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| (Amount in Cr) |
Fusion |
Creditacces | Spandana | Ujjivan |
Satin Credit |
| Market Cap |
3703 |
14884 | 4209 | 2998 |
1180 |
| Borrowing |
4830 |
11425 | 1974 | 2438 |
4081 |
| Fixed Assets |
19 |
256 | 14 | 672 |
85 |
| Revenue |
1201 |
2743 | 1463 | 2995 |
1377 |
| Interest |
496 |
984 | 540 | 1071 |
626 |
| Net Profit |
22 |
357 | 72 | -231 |
21 |
| Equity Cap |
101 |
156 | 71 | 122 |
75 |
| Reserves |
1922 |
3822 | 3018 | 2203 |
1507 |
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Stock Features |
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| Current Price (Rs) |
368 |
955 | 593 | 246 |
158 |
| Face Value (Rs) |
10 |
10 | 10 | 10 |
10 |
| Book Value |
201 |
255 | 435 | 191 |
212 |
| Promoter Stake % |
68.18 |
73.82 | 63.03 | 0 |
36.69 |
| Debt/Equity |
2.4 |
2.9 | 0.6 | 8.9 |
2.6 |
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Profitability |
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| Net Margin % |
1.8 |
13.0 | 4.8 | -7.5 |
1.5 |
| Earnings Per Share |
2.16 |
23.28 | 10.04 | -15.80 |
2.77 |
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Return |
|||||
| RONW % |
1.6 |
9.0 | 2.3 | 0 |
1.3 |
| ROCE % |
8.4 |
9.5 | 12.6 | 16.1 |
11.7 |
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Discounting |
|||||
| Price/Earnings |
170.2 |
41.0 | 59.1 | – |
57.0 |
| Price/Cash EPS |
136.5 |
36.3 | 52.3 | – |
32.4 |
| Price/Book Value |
1.8 |
3.7 | 1.4 | 1.3 |
0.8 |
| Price/EBIDTA |
7.0 |
9.8 | 6.5 | 3.3 |
1.8 |
| Price/Revenue |
3.1 |
5.4 | 2.9 | 1.0 |
0.9 |