Fusion Microfinance IPO: Should you apply or skip as issue opens today? GMP, other details

The initial public offering (IPO) of microlender Fusion Microfinance has opened for subscription on Wednesday November 2, 2022 and the issue, with a price band of ₹350-368 a share, will conclude on Friday, November 4, 2022. The company on Tuesday said it has raised a little over ₹331 crore from anchor investors ahead of its initial share sale.

As of 5 pm on day 1, the issue has been subscribed 0.07 times, with retail investors category booked 0.07x, as per the BSE data.

As per market observers, Fusion Microfinance shares are commanding a premium (GMP) of ₹35 in the grey market today. The company's shares are expected to list on stock exchanges BSE and NSE on Tuesday, November 15, 2022.

Fusion Microfinance IPO comprises fresh issuance of equity shares worth ₹600 crore and an offer of sale (OFS) of 13,695,466 equity shares by promoters and existing shareholders. Net proceeds of the fresh issue will be used to augment the capital base of the microfinance firm.

“Although this company's margins are now in declining mode and it is facing risk due to the category of borrowers it serves, an increase in the level of NPA's could also be a concern for the company. Secondly, the company demands a price-book (P/B) multiple of 1.8 on a post IPO basis, where its peers like creditAccess command a P/B of 3.3. Thus, considering all the factors, we recommend a Subscribe rating for this issue, but only for high-risk investors with a longterm view,” said Swastika Investmart.

The New Delhi-based microfinance company claims to provide financial services to underserved women across India in order to facilitate their access to greater economic opportunities. The company uses a joint liability group (JLG) model, developed by Grameen Bank in Bangladesh, to give loans of up to ₹50,000.

“Company’s profitability was declining in past years due to COVID impact. From FY2023, they are expecting to show recovery in profits. On valuation front, it is available at P/BVPS of 2.28x in FY2022 whereas industry average stands at 2.5x which appears fairly priced. Thus, we recommend to subscribe for listing gains,” said Canara Bank Securities.

ICICI Securities, CLSA India, JM Financial and IIFL Securities are the merchant bankers to the issue. Link Intime India Private Ltd is the registrar to the initial share sale.