Fusion Micro Finance likely to make a muted market debut, suggests grey market premium

Fusion Micro Finance is likely to have a tepid market debut on Tuesday. Last heard, the IPO was commanding a discount of Rs 2 in the grey market, which suggests a flat listing for the stock.  

The IPO, which was sold from November 2 to November 4 in the Rs 350-368 price band, got a total of 2.95 times subscription. The issue was commanding a grey market premium of Rs 35 when the IPO was announced. However, the premium fell amid muted investor response to the issue.

Analysts had advised investors with good risk appetite, who can stay invested for a long-period of time, to 'subscribe' to the issue.  They said financial ratios for Fusion Micro Finance were solid and the overall fundamentals were good, but there were industry-related concerns.

Competition from other MFIs, banks and financial institutions and substantial collections and disbursements in cash were also seen as risks.

Fusion Micro Finance provide financial services to underserved women across India. The company’s focus customer segment is women in rural areas with an annual household income of up to Rs 3,00,000. As of June 30, 2022, the company had 2.90 million active borrowers, which were served by its network of 966 branches and 9,262 employees spread across 377 districts in 19 states and union territories in India. Fusion Micro Finance had the fourth fastest gross loan portfolio CAGR of 53.89 per cent between the financial years 2017 and 2021.

At the upper limit of the price band, the asking IPO valuations stood at 1.9 times adjusted FY22 book value per share (BVPS) and 168 times FY22 diluted EPS.

The issue comprised a fresh issuance of equity shares worth Rs 600 crore and an offer of sale of 1,36,95,466 equity shares by promoters and existing shareholders. The price band for the same is fixed at 350-368 per share.

The net proceeds of the fresh issue would be used to augment the capital base of the microfinance firm.

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