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    Fusion Finance

    FUSION
    Financial Services·26 May 2025
    Management Summary

    Fusion Finance reported a challenging FY25 marked by industry-wide credit stress, leading to a 101 bps YoY decline in NIM and a 22% reduction in gross advances. Despite this, the company successfully completed an oversubscribed rights issue, boosting capital adequacy to over 30% pro forma, and significantly reduced credit costs in Q4 FY25 to ₹253 Cr. Management highlighted improved collection efficiencies, particularly in the new book, and a cautious but growing approach to disbursements, with a focus on stabilizing operations and rebuilding profitability.

    Highlights

    6

    • Rights issue of ₹800 Cr was oversubscribed 1.5x, demonstrating robust investor participation and conviction.

    • Capital adequacy ratio stood at 22.4% as of March 31, 2025, with a pro forma ratio of 30%+ post rights issue, well above mandatory requirements.

    • Received covenant waivers from lenders for approximately 86% of borrowings as of March 2025, reflecting strong lender trust.

    • Credit cost significantly reduced to ₹253 Cr in Q4 FY25 from ₹571 Cr in Q3 FY25, indicating improving asset quality trends.

    • Current bucket collection efficiency at a book level improved to 98.44% in March 2025, an increase of over 180 bps from the start of the year.

    • MSME AUM reached ₹673 Cr by March, with ₹348 Cr in disbursements for FY25, 90% secured, and a client IRR of 22%.

    Concerns

    6

    • FY25 was a 'testing year' for the entire industry, marked by a 'deep credit cycle' and operational challenges.

    • Net interest margin (NIM) for FY25 declined 101 bps YoY to 10.21%, largely due to non-recognition of interest income on Stage 3 assets.

    • Gross advances reduced 22% in FY25 compared to FY24, contributing to an increase in the operating cost ratio.

    • Total write-off of ₹917 Cr was executed in Q4 FY25, including an accelerated write-off of ₹405 Cr, resulting in Gross NPA of 7.9% and Net NPA of 0.3%.

    • Operating costs remained elevated due to investments in collection teams and implementation of regulatory guardrails.

    • Management noted 'a little concern' in some parts of Tamil Nadu regarding collection efficiency in May, impacting the industry.

    What Changed3

    vs Q1 FY26

    Guidance items4 → 6 (+2)Risks discussed4 → 5 (+1)Q&A highlights6 → 8 (+2)

    Key financials

    Single quarter

    07 metrics
    1. 01Capital Adequacy Ratio22.4%
    2. 02Net Interest Margin (NIM)10.2%-1.0%YoY
    3. 03Gross NPA7.9%
    4. 04Net NPA30%
    5. 05Credit Cost₹253 Cr-55.7%QoQ

    Segment breakdown

    MFI Business
    7.4% Operating Cost
    MSME Business
    ₹673 Cr AUM₹348 Cr Disbursements (FY25)33% Operating Cost
    List

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Cash ₹798 crores · Undrawn ₹1,438 crores

    Liquidity stands at ₹798 Cr as of 31st March, with sanctions in hand of ₹1,438 Cr. Current liquidity is more than ₹1,000 Cr.

    Guidance & targets

    6
    CategoryTargetPriority
    Asset Quality
    Net Flow Rate (first bucket)
    0.5% to 0.6%
    		High
    Customer Acquisition
    New to Credit Customer Acquisition (share of disbursements)
    20% to 25%
    		Medium
    Disbursements
    Disbursement Growth
    MoM growth
    		Medium
    Disbursements
    June Disbursements
    a little higher
    		Low
    Business Strategy
    MSME Business Focus
    growth
    		High
    Business Strategy
    MFI Business Focus
    calibrate and stabilize
    		High

    MSME Business Detailed Growth Plan

    End of Q1 FY26
    CurrentAUM ₹673 Cr (March), Disbursements ₹348 Cr (FY25), 'will be on growth'
    TargetDetailed plan for MSME growth

    Why it matters

    Provides clarity on the growth trajectory and strategy for a key diversification segment, crucial for future revenue streams.

    Now, I would like to hand over the call to Sanjay, who will be sharing more details with you on business and how we are gearing up for the future. Thank you and over to Sanjay... We will give you a detailed plan at the end of Q1 FY26.

    How to verify

    guidance_and_targets

    Risks & concerns

    5
    RiskSeverity

    Industry-wide deep credit cycle and operational challenges

    FY25 was a 'testing year' for the entire industry, with Fusion recognizing stress early and implementing measures. — Management acknowledged

    high

    Covenant breaches with lenders

    In Q3 FY25 and Q4 FY25, the company was in breach of financial covenants, but received waivers for 86% of borrowings and is engaging for the rest. — Management acknowledged

    medium

    Elevated operating costs due to investments in collection teams and regulatory guardrails

    Operating cost increased due to strengthening collection teams and more stringent client onboarding, leading to a 22% reduction in asset size. — Management acknowledged

    medium

    Lender caution and sector-wide pain

    Bankers are 'slightly cautious' due to sector pain, but Fusion's strong capital adequacy and early flagging of issues provide comfort. — Management acknowledged

    medium

    Collection efficiency concerns in specific states (Tamil Nadu)

    'Some parts of Tamil Nadu, the entire industry is seeing a little concern' in May, but Fusion's new book collection efficiency remains high. — Management acknowledged

    medium

    Q&A highlights

    8

    “We are close to about Rs. 313 Cr in April, and we will grow MoM. For MSME, like we said, we have a completely separate leadership team. So, these are completely mutually exclusive businesses. We think that the headroom on MSME is much larger.”

    Clarifies the company's cautious growth approach, segment focus (MSME for growth, MFI for stability), and state-wise strategy, indicating a shift in focus.

    asked by Shreya Shivani

    3 min read7 chapters

    Detailed Narrative

    01

    Q4 & FY25 Financial Performance Overview

    Fusion Finance navigated a challenging FY25, marked by an industry-wide deep credit cycle and operational hurdles, leading to a 22% reduction in gross advances compared to FY24. Despite this, the company successfully completed a ₹800 Cr rights issue, which was oversubscribed 1.5x, boosting its pro forma capital adequacy to over 30%. The net interest margin (NIM) for FY25 declined 101 bps YoY to 10.21%, primarily due to non-recognition of interest income on Stage 3 assets.

    02

    Asset Quality and Provisioning Strategy

    The company executed a total write-off of ₹917 Cr in Q4 FY25, including an accelerated write-off of ₹405 Cr. Post these write-offs, Gross NPA stood at 7.9% and Net NPA at 0.3%. Credit costs significantly reduced to ₹253 Cr in Q4 FY25 from ₹571 Cr in Q3 FY25. Stage 3 coverage was increased from 88% to 96.5%, with total ECL provision on Stage 3 at 137%, reflecting a conservative view on asset recoverability.

    03

    Disbursement Strategy and Portfolio Mix

    Fusion Finance adopted a cautious and calibrated approach to lending, with Q4 FY25 disbursements at ₹1,164 Cr, bringing the full-year total to ₹6,971 Cr. The new book, originated since August 2024 with stricter guardrails, constitutes 34% of the overall book (₹2,500 Cr) and exhibits a high current bucket collection efficiency of 99.61% in April. The company aims for MoM growth in disbursements, with April figures around ₹315 Cr.

    04

    Operational Efficiency and Cost Management

    The cost-to-income ratio for FY25 was 51.71%, declining QoQ to 69.61% in Q4 FY25 from 75.91% in Q3 FY25. This reduction was partly attributed to non-recognition of income on incremental Stage 3 assets and portfolio reduction. Management noted increased operating costs due to investments in collection teams and regulatory guardrails, with an estimated 20% of collections expense allocated to collection efforts, expecting results to materialize over time.

    05

    Funding and Capital Adequacy

    Fusion Finance maintained a strong capital adequacy ratio of 22.42% as of March 31, 2025, which would be over 30% pro forma for the rights issue. The company raised ₹585 Cr in Q4 FY25 and ₹5,040 Cr in FY25 through debt, including direct assignments. Liquidity stood at ₹798 Cr as of March 31, 2025, with sanctions in hand of ₹1,438 Cr, and current liquidity exceeding ₹1,000 Cr, reflecting continued lender support despite covenant breaches.

    06

    MSME Business Growth and Strategy

    The MSME business continues to scale in a controlled manner, with AUM reaching ₹673 Cr by March and FY25 disbursements of ₹348 Cr. This segment is around 90% secured with a client IRR of 22%. Management views MSME as a key growth driver, with a separate leadership team and infrastructure, while the MFI business focuses on calibration and stabilization, with a detailed MSME plan expected by the end of Q1 FY26.

    07

    Regional Performance and Risk Control

    The company has rebalanced state-level disbursements, classifying states into 'hold,' 'grow,' and 'reduce' categories based on 1-year performance and industry trends. While states like UP and Bihar show improvement, a 'go-slow' approach is adopted in Orissa, Gujarat, and Rajasthan. Management acknowledged 'a little concern' in some parts of Tamil Nadu in May regarding collection efficiency but emphasized proactive measures and additional guardrails to manage regional risks.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.