On Monday, Fusion Micro Finance Ltd (FUSION:IN) experienced a downgrade in its stock rating from CLSA, shifting from Outperform to Underperform, accompanied by a significant reduction in its price target to INR260.00 from the previous INR525.00.
The downgrade was prompted by the company's recent disclosure of increased credit costs for the second quarter of 2025, which suggests that the collection efficiency issues observed at the end of the first quarter have not improved.
The implementation of new regulations by the Microfinance Institutions Network (MFIN) starting August 1 has brought to light the challenges faced by overleveraged customers. In response, Fusion Micro Finance has taken several measures, including hiring a new business head and revising the incentive structures for its collection team to prioritize collections.
Additionally, the company is set to complete an equity raise of Rs5.5 billion within the calendar year 2024, with indications from media reports that it will be executed through a rights issue. The firm is currently undergoing multiple changes in processes and leadership, which are expected to impact its recovery and return on equity (ROE) in the microfinance industry. The analyst at CLSA cited these factors as the basis for the downgrade in Fusion Micro Finance's stock rating.
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