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fusion micro finance ipo subscribe: Fusion Micro Finance IPO to open tomorrow: Should you subscribe to the issue?

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The Rs 1,104-crore initial public offering (IPO) of Fusion Micro Finance is set to open for subscription on Wednesday, November 2. The non-banking finance company (NBFC) will sell its shares in the range of Rs 350-368 apiece.

Brokerage firms largely remain cautious over the issue as they believe the negatives outweigh the positives. Most have assigned a neutral rating to the IPO.

The company on Tuesday said it has raised a little over Rs 331 crore from anchor investors. Nomura, BNP Paribas Arbitrage, Aditya Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund, Edelweiss Mutual Fund, Motilal Oswal Mutual Fund, HDFC Life Insurance Company, Bajaj Allianz Life Insurance Company and Kotak Mahindra Life Insurance Company are among the anchor investors, it added.

Fusion Micro Finance is engaged in providing financial services to women entrepreneurs belonging to the economically and socially deprived section of society.

The issue consists of the issuance of fresh equity shares worth Rs 600 crore with an offer for sale (OFS) of up to 13,695,466 equity shares from the existing shareholders and promoters of the company.

Fusion has optimized the cost of funds, liquidity requirements and capital management over the years, in challenging market conditions, led by prudent liability management, the ability to secure sufficient and diversified borrowings on competitive terms and improved credit ratings, said Securities in its IPO note .

“Given well-diversified and extensive pan-India presence, proven execution capabilities with a strong rural focus, a knock for quick adoption of technology, access to capital, effective asset liability management and valuation comfort, we recommend a ‘subscribe’ rating to the issue,” it added.

The New Delhi-headquartered shadow lender’s issue can be subscribed till Friday, November 4, with a bid of minimum of 40 equity shares and then in multiples thereof.

The net proceeds from the fresh issue will be used towards augmenting its capital base to meet future capital requirements, the lender said.

Launched in 2010, Fusion Microfinance provides financial services to unserved and underserved women in rural and peri-rural areas across India. Its gross asset under management (AUM) was at Rs 73.89 billion, up 59.6% from the year-ago quarter.

It has 2.90 million active borrowers with a network of 966 branches and 9,262 permanent employees spread across 377 districts and 19 states and union territories, the lender said.

Angel One has cited well diversified and extensive pan-India presence, technologically advanced operating model, well-positioned to capitalize on industry tailwinds and stable and experienced management as the key positives.

However, a large portion of collections and disbursements from customers are in cash, exposing the company to operational risks, it said. Any downturn in the economy can impact GNPA/NNPA ratios or disruptions in sources of funding or increase in costs of funding could adversely affect liquidity and financial conditions, it added.

Considering all the positive factors, we believe the valuation is at reasonable levels. It accorded a ‘neutral’ rating to the issue.

The company has reserved 50% of the shares for qualified institutional buyers, whereas non-institutional investors will get 15% of the shares. The remaining 35% of the shares have been allocated to the retail bidders.

CLSA India, , are the lead managers to the issue, whereas Link Intime India has been appointed as the registrar to the issue.

Fusion plans to be a low-cost, lean and efficient pan-India MFI by focusing on advanced technology, expanding its distribution network, and entering new markets and customers, said

Broking, which remains neutral on the issue.

“On the financials front, the company has seen decent revenue growth of 28% CAGR over FY20-22 while profit de-grew by 44% CAGR between FY20-22 due to increase in expenses,” it added. High dependency on the five states for AUM and customers are the key risks for the issue, according to Religare Broking.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)