On Monday, Investec has downgraded Fusion Micro Finance Ltd (FUSION:IN) stock from 'Hold' to 'Sell', significantly reducing the price target to INR300 from INR500. The downgrade follows Fusion's recent profit warning for its second quarter, where the company forecasted a potential credit cost between INR5 billion to INR5.5 billion, a jump from INR3.5 billion in the first quarter.
The firm has initiated a search for a new Managing Director and CEO, pointing to the growing macroeconomic complexities and evolving sector dynamics as the catalysts for this decision. Moreover, Fusion Micro Finance is looking to bolster its finances by raising up to INR5.5 billion in equity capital.
According to Investec, the microfinance sector as a whole is experiencing stress, but Fusion's credit costs are particularly concerning. The firm anticipates that credit costs will remain high across the microfinance industry for the fiscal year 2025. For Fusion specifically, there is a concern that the high credit costs could lead to a series of negative outcomes, including a credit rating downgrade, funding issues, or a reduction in the loan book, which could further drive up credit costs.
Investec's commentary underscores the urgency for Fusion Micro Finance to swiftly address the management changes and secure the necessary capital. The actions taken by Fusion in the near future will be critical in determining the company's ability to navigate through the current challenges.
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