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CRISIL upgrades Fusion Micro Finance Limited to ‘CRISIL A+/Stable’

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Second credit rating improvement given by CRISIL within 11 months

NEW DELHI, Oct. 4, 2023 /PRNewswire/ — Fusion Micro Finance [BSE (BOM: 543652) and NSE (NSE: FUSION)], one of India’s leading NBFC-MFIs, has announced that CRISIL, the Credit Rating Agency, has upgraded its credit rating on the Bank Loan Facilities and Non-Convertible Debentures of Fusion Micro Finance Limited to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’. Notably, this is the second upgrade by CRISIL for Fusion Micro Finance Limited in a short span of 11 months. In November 2022, CRISIL had upgraded Fusion Micro Finance Limited to ‘CRISIL A/Stable’ from ‘CRISIL A-/Stable’.

Summary of Rating Action is as below:

  • Total Bank Loan Facilities Rated – Rs. 5000 Crore
  • Long Term Rating – CRISIL A+/Stable (upgraded from CRISIL A / Stable)
  • Rs. 50 Crore Non-Convertible Debentures – CRISIL A+/Stable (upgraded from CRISIL A / Stable)

Commenting on the upgrade, Mr. Devesh Sachdev, Managing Director and CEO, Fusion Micro Finance Ltd, said, “We are delighted with this significant achievement of getting a second upgrade in less than 11 months. It reflects our resilience and strong business model. We remain committed to build upon our strong foundation laid over the years and creating long-term value for all our stakeholders.”

Detailed rationale:

CRISIL’s Ratings has upgraded its long-term rating on the bank facilities and debt instruments of Fusion Micro Finance Limited (Fusion) to ‘CRISIL A+/Stable’ from CRISIL A/Stable.

The rating action takes into consideration the substantial improvement in earnings profile driven by higher net interest margins (NIMs) and controlled credit costs. It also factors in the improvement in scale of operations along with improving asset quality.

In line with revised regulatory framework, the company has enhanced its risk-based pricing by increasing its yields by ~200 to 300 bps during fiscal 2023 leading to expansion in NIMs to 10.5% during the fiscal as against 8.2% the previous year. At the same time, credit costs continue to remain low at 2.2% supported by collection efficiency being consistently over 99% for newer originations done. Benefitting from both improvement in NIMs as well as lower credit costs, overall profitability has improved as reflected in return on managed assets (RoMA) 4.3% for fiscal 2023 (4.5% during Q1 fiscal 2024). The company is expected to sustain improved profitability over the medium term.

The company’s portfolio has seen steady growth with Fusion being among the top 5 MFIs operating in India. The company’s AUM stood at Rs 9,712 crore as of June 2023 (Rs 9,296 crore as of March 2023, Y-o-Y growth of 37%) and is expected to have crossed Rs 10,000 crore by end of September 2023. The company has also maintained equal focus on improving its asset quality along with the growth. As of June 30, 2023, the 90+ dpd improved to 3.2% as against 3.5% as of March 31, 2023 and 5.7% as of March 31, 2022. CRISIL ratings notes that the company didn’t sell any portfolio to ARCs and wrote off Rs 307 crore (3.2% of the portfolio as of June 2023) in last 15 months. Collection efficiency has remained strong with low delinquencies for loans originated in the last 12-18 months. This in-turn has resulted in lower credit costs on incremental basis.

The rating also continues to factor in healthy capital position which continues to strengthen overall credit profile of Fusion. The company was successfully able to raise Rs 600 crore through IPO done in Q3 of fiscal 2023. With this equity raise and substantial improvement in accretions Fusion’s net worth improved to Rs 2,445 crore in June 2023 as compared to Rs 2,322 crore in March 31, 2023 and Rs 1,338 crore in March 2022. Company’s adjusted gearing, which also improved, stood at 3.4 times as on June 30, 2024 as compared to 3.3 times as on March 31, 2023 (4.8 times as on March 31, 2022). Nevertheless, with continuous growth in scale of operations, the ability of the company to maintain adjusted gearing below 4.0 times will remain key rating sensitivity factor.

The rating also reflects experienced leadership and senior management team along with sound risk management/audit processes that are set-up by Fusion. These strengths are partially offset by inherently modest credit risk profile of borrowers, and potential risk from local socio-political issues inherent to the microfinance sector.

About Fusion Micro Finance Limited:

Fusion Micro Finance [BSE (BOM: 543652) and NSE (NSE: FUSION)] founded in 2010, is amongst India’s leading NBFC-MFIs, touching the lives of ~36 lakh rural clients in the country. Fusion Micro Finance was established with the core idea to create opportunities at the bottom of the pyramid by providing financial services to the underserved and unserved women entrepreneurs in rural areas. It is one of the youngest companies to be among the top NBFC MFIs in the country, growing consistently with an extensive network of 1,103 branches spread across 20 states including 3 Union Territories, as of June 2023. Fusion believes in robust business practices and transparent policies as expressed in its customer-centric efforts toward clients and is committed to creating sustained and balanced stakeholder value.

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