Buy Fusion Finance; target of Rs 240: ICICI Securities

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Asset quality improvement: Fusion Finance's asset quality metrics are holding up amid challenges, with a sharp improvement in AQ and credit cost settling below 2%.
  • Operating leverage and NIM expansion: The company's operating leverage and expanding NIM are fuelling a sustained earnings recovery, with a 59bps QoQ expansion in NIM.
  • New products and growth drivers: Fusion Finance has launched new products, such as premium JLG loans, and is seeing growth in its MSME segment, which is expected to contribute to future growth.
  • Risk management and deleveraging: The company has a highly disciplined approach to risk, with a focus on directing disbursements to borrowers with two or fewer lender-relationships and halting new customer acquisition in drought-hit branches.

Thesis Validation Checklist

  • Asset quality metrics: Investors should watch for continued improvement in asset quality metrics, such as CE and PCR, to validate the thesis.
  • NIM expansion: Further expansion in NIM will be a key indicator of the company's ability to sustain profitability.
  • Growth in new products: The success of new products, such as premium JLG loans, will be crucial in driving future growth.
  • Risk management: The company's ability to manage risk and maintain a disciplined approach to lending will be essential in navigating potential challenges.