Fusion Microfinance sees asset growth moderating as pent-up demand tapers

Expects to NIMs to improve to 11.3-11.5% from 10.3%

After clocking asset growth of over 40 per cent year over year (YoY), Fusion Microfinance Ltd will moderate pace of book expansion to 25-30 per cent.

Devesh Sachdev, Managing Director and CEO, Fusion Micro Finance Ltd (Fusion) said the asset book grew by 45 per cent YoY till December 2022, reflecting the pent-up demand seen largely in the post-pandemic period. The growth would moderate to 25-30 per cent, due to an expanded base.  

A company presentation showed that since FY17, the firm's assets under management have been rising at a compounded annual growth rate (CAGR) of 50 per cent to Rs 8,653 crore, from Rs 827 crore at end of FY17.  

The lender, which announced its financial results for Q3FY23 over the weekend, posted a profit after tax (PAT) of Rs 102.46 crore for the reporting quarter, up from Rs 93 lakh in Q3FY22.

While growth sees moderation on a large base, the BSE-listed micro finance institution is guiding for an improvement in margins.

Sachdev said the net interest margins (NIM) should improve to 11.3-11.5 per cent Q1FY24 onwards, from 10.3 per cent in Q3FY23. The better margins will be driven by two factors – higher yields and fine pricing for funds raised to finance credit demand on rating upgrade.

The new portfolio has been booked at higher rates, reflecting the rising rates in the system at a time when the old loan portfolio (booked at lower lending rates) runs down. The yield on its portfolio rose from 17.7 per cent in Q4FY22 to 20.7 per cent in December 2022 (Q3FY22).

Secondly, with the upgrade in the ratings, the micro finance lender hopes to get access to cheaper funds. The cost of funds may be stable or may come down, Sachdev said.

The marginal cost of borrowings rose from 10.3 per cent in Q4FY22 to 11.2 per cent in the third quarter of the current financial year.

In December 2022, Icra upgraded ratings for Fusion’s debentures from “A-” to “A” on  increased scale of operations and the improvement in profitability indicators. This was driven by the increase in yields and the reduction in the credit costs.