Forward Community Microfinance (FOWAD) Shows Weak Profitability Despite Strong Capital Coverage

Forward Community Microfinance Bittiya Sanstha Limited (FOWAD) has published its audited Q4 results for FY 2024/25, reflecting revenue contraction, weak bottom-line performance, and declining profitability compared to last year, though its capital buffer and provisioning coverage remain strong.

The company posted total revenue of Rs. 2.62 billion, a 26% year-over-year decline from Rs. 2.89 billion in Q4 2023/24. Revenue fluctuations across quarters highlight volatile loan demand and interest income. Gross profit stood at Rs. 1.05 billion, with a margin of 40.19%, lower than last year’s 42.06%, showing slightly weaker cost efficiency.

Net income fell sharply to Rs. 65.31 million, compared to Rs. 321.39 million in Q4 2023/24. This represents a net margin of only 2.49%, down significantly from last year’s 11.10%. Profitability was weak throughout the fiscal year, with EPS (annualized) dropping to Rs. 5.46, compared to Rs. 30.45 last year. Despite low earnings, FOWAD’s stock remained in demand, closing at Rs. 1,293.86 per share, close to last year’s Rs. 1,413.00. The PE ratio soared to 236.93, reflecting stretched valuations relative to earnings.

Book Value per Share remained steady at Rs. 249.65, slightly below last year’s Rs. 288.96. Dividend distribution was absent this year, compared to Rs. 14.00 per share distributed previously.

Financial Sector Indicators

Key financial metrics reflect both resilience and risk:

• Capital Fund to RWA stood at 10.06%, in line with regulatory requirements but flat compared to last year’s 10.22%.

• NPL Ratio was 6.65%, slightly higher than last year’s 6.81%, suggesting continued loan recovery challenges.

• Positively, Loan Loss Provision coverage rose to 147.83%, well above last year’s 117.15%, indicating strong credit risk provisioning.

• Cost of Funds improved to 8.57%, down from 9.67%, helping control funding expenses.

• Credit-to-Deposit Ratio climbed to 117.19%, showing aggressive lending beyond deposits, which may strain liquidity.

• Base Rate dropped slightly to 11.84%, improving loan affordability, while Net Interest Spread rose to 6.40%, higher than last year’s 5.31%, reflecting improved core lending efficiency.

• Net Liquid Asset was only 5.35%, down from last year’s 6.98%, signaling tight liquidity.