Fusion Finance shares tank 4%; turnaround to be challenging, says Emkay

Fusion Finance shares tank 4%; turnaround to be challenging, says Emkay  

Fusion Finance Ltd shares, which rebounded a solid 46 per cent in the past three months, corrected 4 per cent in Monday’s trade, as brokerage Emkay Global felt the turnaround at the NBFC would be challenging.   

The brokerage met Fusion Finance’s new CEO Sanjay Garyali to understand his business turnaround plan, noting the immediate focus is on managing asset quality and restoring profitability, while adopting a disciplined and diversified portfolio growth approach in the long run. Emkay Global, however, believes the geographic and product diversification away from MFI would lead to elevated operational cost in the initial phase and hurt margins.

This would in turn moderate the RoA trajectory to 0.9-2.5 per cent and RoE  to 4-10 per cent over FY26-28E from the highs of 5 per cent and 20-21 per cent, respectively, in FY23-24, it warned. 

“Considering the easing going concern issues following the capital infusion (of Rs 800 crore) by pedigreed investors and the reducing incremental MFI stress flow, we haul up our target price by 26 per cent to Rs 170 from Rs 135, valuing Fusion at 1x FY27E ABV; we though retain REDUCE,” it said.

On Monday, the stock was trading 3.64 per cent lower at Rs 198.40 on BSE. Emkay’s target price suggests a potential 14 per cent downside on the counter.

Emkay Global said Fusion Finance was early to report stress built up in Q1 due to the impact of the heat wave, followed by imposition of MFIN guardrails, with its GNPA ratio touching a high of 12.6 per cent in Q3 and even leading to change in the management. 

Fusion Finance logged one of the highest shares of borrowers with +3 lenders at 31.5 per cent, which remains elevated at 18 per cent as of March 2025. Thus, the unwinding could impact growth/asset quality in the near-to-medium term, Emkay said.

The management claims that the new stress flow into 0+ DPD as well as within the 0-90 DPD pool has eased and should hence lead to lower NPA formation in FY26. 

However, Emkay expects overall credit cost to remain elevated at 5 per cent, given higher write-offs. Per its strategy, the NBFC also has plans to onboard a Chief Credit Officer, to improve credit underwriting practices and expand its on-field recovery team for driving up hard bucket recovery. 

“Fusion has 19 per cent of its MFI portfolio in the state of Bihar which we believe should be watched, given the ensuing elections,” Emkay Global said.

The new CEO has long stint at banks such as Kotak Mahindra Bank and HDFC Bank in liability, at GE Capital in assets (housing, 2Ws, consumer finance), and at L&T Finance Ltd in urban finance. 

“Current MD cum Founder Devesh Sachdev will relinquish his position and eventually assume the role of Non-Executive Chairman to preserve institutional expertise in the company. The new MD assured that though he has not directly run the MFI business, he has been part of many business build-up and transformational journeys; hence his expertise should help turn around Fusion,” Emkay Global said. 

Garyali indicated that the new stress flow rate is easing, though FY26 could largely be a year of consolidating the MFI portfolio, while the company would consciously focus on reducing its MFI portfolio concentration in the states of Bihar, MP, Gujarat, Rajasthan, Odisha, and Maharashtra over the next two years, Emkay Global said.

“With the RBI relaxing the threshold for NBFC-MFIs to hold 75 per cent of the assets in MFI loans to 60 per cent, the process of product diversification (eg MSME, mortgage) would accelerate and thus provide portfolio stability in the long run,” it said.