Motilal Oswal has reiterated a 'BUY' rating on Fusion Micro Finance with a target price of Rs 260. The company turned profitable in the first quarter of FY27, reporting a net profit of Rs 62.4 crore. Investors are tracking the firm's shift toward individual loans and its improving asset quality after a difficult previous year.
Motilal Oswal has maintained a 'BUY' recommendation for Fusion Micro Finance, setting a target price of Rs 260 per share. The brokerage's latest view follows the company's financial results for the first quarter of the 2027 fiscal year (Q1 FY27), which showed a significant turnaround for the microfinance lender.
Financial Turnaround
The company reported a standalone net profit of Rs 62.41 crore for the quarter ended June 30, 2026. This performance marks a notable recovery compared to the same quarter in the previous year (Q1 FY26), when the company recorded a net loss of Rs 92.25 crore. Alongside the return to profitability, the company saw its Net Interest Margin—a key measure of the difference between interest earned from loans and interest paid on borrowings—improve to 11.93%.
Asset quality also showed signs of improvement, with Gross Non-Performing Assets (GNPA) falling to 2.51% in Q1 FY27, down from 3.21% in the preceding quarter. This suggests that the company is managing its loan repayments more effectively than it was in the recent past.
New Product Strategy
Beyond the headline profit numbers, Fusion Micro Finance is actively trying to diversify its business. The company’s Board of Directors has approved the launch of 'Individual Loans' to reduce its dependence on its core microfinance portfolio. This move is part of a broader strategy to cater to a wider range of customers. For investors, the success of this diversification is a key point to monitor, as shifting from a standard microfinance model to individual lending involves different risk assessment and collection processes.
Risks and Outlook
While the company has shown recovery, the microfinance sector remains sensitive to economic conditions and regulatory changes. The company’s future performance relies on its ability to keep credit costs stable while growing its loan book. Because the company is launching new product segments, there is an inherent risk of execution delays or higher-than-expected costs in the initial phase. Additionally, the microfinance industry is prone to volatility, and sustaining the current improvement in asset quality will depend on the repayment behavior of borrowers in rural and semi-urban markets.
The next important update for shareholders will be management's commentary on the progress of the new loan products and whether the improvement in margins and asset quality continues in the coming quarters.