Fusion Finance shares rise 4%; Emkay’s target after meeting MD & CEO Sanjay Garyali

Fusion Finance Ltd saw its shares rising 4 per cent in Wednesday's trade after falling in the previous three sessions. Emkay Global, which met Fusion’s new MD and CEO, Sanjay Garyali, to discuss the ongoing business transformation initiatives and the MFI recovery story, said the NBFC has survived existential risk, but full turnaround will take time. 

While the new MD has not directly managed MFI business in the past, he comes from pedigreed institutions, and is focusing on strengthening assurance, risk, and control functions to prevent a recurrence of past lapses that led to near-existential risk for Fusion Finance, Emkay Global said.

"He indicated that net flow forward into the PAR 0+ bucket has stabilised at 0.5-0.6 per cent, from a high of 3 per cent last year, while X bucket’s collection efficiencies have improved to 98.5 per cent, leading to lower formation of fresh stress and thus, credit cost. With capital in place (second tranche of Rs 400 crore to come soon) and stress flow rates easing, disbursements are also picking up," Emkay Global said. 

The domestic brokerage said Fusion Finance may soon turn profitable on a quarterly basis, but the full business turnaround and regaining old charm will take time, subject to no further external shocks. 

"Thus, we retain REDUCE with a target price of Rs170 (1x Sep-27E ABV). Within the MFI space, we prefer South-based players, including Ujjivan SFB and CREDAG, for now; we will remain watchful of Fusion’s turnaround," it said. 

Emkay Global said Fusion Finance has undertaken significant governance reforms, making assurance, risk, and other key control functions fully independent and delinking them from business KPIs. Decision making, earlier concentrated among a few individuals, has now been broadened, easing the load on the MD and CEO and improving supervision across functions. 

"As part of guardrail reinforcement, credit personnel have been placed across 250 large branches to meet customers directly and ensure adherence to guardrails and bureau data norms. Process and operational gaps have been fixed and thus, fresh disbursements have accelerated as well," Emkay said. 

"Fusion was early to enter the stress cycle but is now gradually catching up with the MFI recovery story, in line with peers," it said.