The call and the levels

Let me set out the trade parameters before the argument. ICICI Securities has retained BUY and valued the stock at 1.3 times its estimated March 2027 book value, yielding a target of Rs 240. Against the prevailing quote of Rs 206, that leaves roughly 17 percent of upside. The counter has ranged between Rs 137 and Rs 243 over the trailing year, so the objective sits just shy of the recent high — a measured target that leans on a recovering return profile rather than heroic multiple expansion.

Seven quarters of repair: the asset-quality turn

The heart of the story is a balance sheet that has been methodically scrubbed clean. Credit cost eased to about 2.1 percent, its seventh consecutive quarterly decline and the lowest reading in 16 quarters. Gross non-performing loans slid to 2.51 percent from 3.2 percent, while the net figure held at a slender 0.5 percent. Crucially, the total stress pool — Stage 2 plus Stage 3 — contracted to 3.2 percent, also a four-year low, and the lender carries robust provision coverage of 81 percent on Stage 3 and 65 percent on Stage 2. Collection efficiency for the microfinance book nudged up to 99.76 percent, and net forward flows from current to overdue thinned to just 8 basis points. Management, having migrated collections entirely in-house and deployed an AI-driven engagement platform, guides to credit cost settling near 2 percent for FY27.

Growth returns to the loan book

After six quarters of contraction, assets under management are expanding once more. The book rose 4 percent sequentially to about Rs 7,702 crore, following a 7 percent jump in the March quarter, finally dragging the annual comparison back into positive territory. Disbursements ran at Rs 1,780 crore for the quarter — down 17 percent on a seasonally high base, yet up a striking 88 percent year-on-year. Management is steering toward a Rs 10,000 crore portfolio by March 2027, underpinned by disbursements of roughly Rs 9,000 crore. Tellingly, the quality of new lending is improving: 51 percent of disbursements went to Fusion-only borrowers even as approval rates were tightened to 25 percent. The company is also diversifying, scaling its MSME book toward 15 percent of assets by FY27 and 20 percent by FY28, and has cleared the launch of individual loans as a fresh product line.

Margins, yields and the earnings engine

Profitability is being propelled from both sides. Net interest margin widened 49 basis points to 11.93 percent, lifted by an 80-basis-point rise in portfolio yield to 22.5 percent, even as the average cost of borrowing crept up to 10.6 percent. Encouragingly, only about 12 basis points of a recent 55-basis-point rise in disbursement yield has so far flowed into reported margins, leaving a further 15 to 20 basis points of tailwind to surface by year-end. Core net interest income rose 5 percent sequentially, operating profit climbed nearly 10 percent, and pre-tax profit vaulted 67 percent to Rs 62 crore. Because of an accumulated tax shield, post-tax profit essentially matched the pre-tax figure — a dynamic that should persist for roughly two years.

The tax shield and a fortress balance sheet

Earnings snapshot and valuation

The forecasts trace a vivid V-shaped recovery. From a chastening loss in FY25 and a wafer-thin profit in FY26, ICICI Securities models post-tax profit of about Rs 450 crore in FY27 and Rs 658 crore in FY28, carrying return on assets from near zero to 5.7 percent and return on equity to a healthy 20.3 percent. On those numbers the stock changes hands at roughly 5 times FY28 earnings and 0.9 times forward book — an undemanding tag for a franchise reclaiming its footing.

Risks to keep in view