Fusion Gets 'Buy' Upgrade From Motilal Oswal, Spandana Downgraded To 'Neutral' In MFI Space — Here's Why

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Motilal Oswal Report

Business growth remains a secondary focus for most MFI players, as the primary concern is stabilizing asset quality and collections. The consensus is that only after overcoming the "hump of collections" will institutions pivot to growth strategies focused on disbursements and AUM growth. 

The MFI sector is emerging out of a stress cycle, with signs of normalization visible in collection efficiencies, flow rates, and PAR trends.

Profitability in the very near term (over the next one to two quarters) will remain weighed down by muted AUM growth, high-cost ratios, and elevated credit costs.

However, we expect earnings to exhibit a strong recovery from Q4 FY26 or FY27 onwards. NBFC-MFIs (except CreditAccess Grameen) are trading at undemanding valuations of 0.5x-1.1x FY27E BV, factoring in near-term stress but not fully capturing the upside from structural shifts in underwriting, portfolio diversification, and subsequent improvement in operating leverage.

We believe that the worst of this MFI asset quality cycle is now clearly behind us, and companies with stronger risk frameworks, prudent geographic diversification, and better access to funding will outperform peers as the industry normalizes.

We upgrade Fusion to Buy (target price: Rs 240), reiterate our Buy rating on CreditAccess Grameen (target price: Rs 1,660), and downgrade Spandana to Neutral (target price: Rs 280).

We also include snippets on Muthoot Micro finance (Not Rated), Satin Credit Care (Not Rated), and IIFL Samasta (Unlisted) to provide a comprehensive overview of the NBFC-MFI sector.

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