Shares of Fusion Micro Finance Ltd. surged as much as 7.7 percent in early trade on Tuesday after institutional brokerage firm CLSA initiated coverage on the stock with a ‘buy’ rating.

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CLSA gave a target price of Rs 550 on the Fusion Micro Finance stock, indicating an upside potential of over 46 percent from Monday’s closing level of Rs 376.10.

Reacting to the development, shares of Fusion Micro Finance hit an intra-day high of Rs 405 apiece on Tuesday.

CLSA said that Fusion Micro Finance was among the youngest large microfinance institutions in India with a balance sheet of $1 billion and is well-capitalised for its medium-term growth ambitions.

The brokerage firm believes that over the next two years Fusion Micro Finance is poised to benefit not only from the microfinance recovery cycle in India but also from the (interest rate) spread deregulation that came about in 2022.

It expects Fusion Micro Finance’s assets under management (AUM) to record a 25 percent compounded annual growth rate (CAGR) over the fiscal years 2022-2025 with an average RoA (return on assets)/RoE (return on equity) of 4.7 percent/20 percent over the next two years.

Earlier this month, ICICI Securities also initiated coverage on the Fusion Micro Finance stock with a ‘buy’ rating and a price target of Rs 600.

In a research report dated January 23, ICICI Securities said, “Fusion Microfinance, with a decade-long experience in MFI lending space, well-diversified portfolio, and stable management team, is likely to emerge as a preferred player to play on India’s financial inclusion story.”

“Pristine asset quality during its decade-long journey, as reflected in GNPL (gross non-performing loans) of 3.8 percent and standard restructured book of 0.5 percent as on September 2022, highlights its quality underwriting, proactive risk management, and deep understanding of demographics in the states where it operates,” it added.

Shares of Fusion Micro Finance are trading 8.59 percent higher at Rs 407.70.

(Edited by : Rukmani Krishna)