Fusion Micro Finance set to debut in muted market, gray market premium suggests

Fusion Micro Finance is expected to debut in the warm market on Tuesday. Last heard the IPO commanded a gray market discount of Rs 2, suggesting a flat quote for the stock.

The IPO, which was sold from November 2-4 in the Rs 350-368 price range, secured a total of 2.95 times the subscription. The issue commanded a gray market premium of Rs 35 when the IPO was announced. However, the premium fell amid muted investor response to the question.

Analysts had advised investors with a good appetite for risk, who can stay invested for a long time, to “subscribe” to the issue. They said Fusion Micro Finance’s financial ratios were strong and general fundamentals were good, but there were industry-related concerns.

Competition from other MFIs, banks and financial institutions and substantial cash receipts and disbursements were also considered risks.

Fusion Micro Finance provides financial services to underserved women across India. The company’s target customer segment is women in rural areas whose annual household income is up to Rs 3,000,000. As of June 30, 2022, the company had 2.90 million active borrowers, which were served by its network of 966 branches and 9,262 employees spread across 377 districts in 19 states and union territories in India. Fusion Micro Finance had the fourth fastest gross loan portfolio CAGR of 53.89% between fiscal years 2017 and 2021.

At the upper end of the price range, requested IPO valuations were 1.9 times FY22 adjusted book value per share (BVPS) and 168 times diluted EPS for the exercise 22.

The issuance included a new issue of equity shares worth Rs 600 crore and an offer for sale of 1,36,95,466 equity shares by promoters and existing shareholders. The price range for the same is set at 350-368 per share.

The net proceeds from the new issue would be used to increase the capital base of the microfinance business.

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