Fusion Finance Limited — Q4 FY25 earnings call

Call held 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

  • 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

  • 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.

Key financials

  1. Capital Adequacy Ratio 22.4%
  2. Net Interest Margin (NIM) 10.2% -1%YoY
  3. Gross NPA 7.9%
  4. Net NPA 0.3%
  5. Credit Cost ₹253 Cr -55.7%QoQ
  6. Cost-to-Income Ratio 69.6% -8.3%QoQ
  7. Disbursements ₹1,164 Cr

What they filed

Q1 FY27: revenue up 3.6%, net profit up 167.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue692 474 466 442 401 −42%416 −12%424 −9%458 +4%
Net profit-305 -719 -165 -92 -22 +93%14 +102%114 +169%62 +167%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

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

Capital allocation

high confidence
  • Liquidity Cash ₹798 Cr · Undrawn ₹1,438 Cr 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.
    As of 31st March, our liquidity stands at Rs. 798 Cr, and we have sanction in hand of Rs. 1,438 Cr. As of today, the liquidity is more than Rs. 1,000 Cr.

Guidance & targets

Asset Quality

  • Net Flow Rate (first bucket) Asset Quality · Q1 FY26 · High confidence 0.5% to 0.6%
    Yes, you should assume about 0.5% to 0.6% roughly. It was 0.55% to 0.58%. That's why, I'm calling out a range between 0.5% and 0.6%, and we are seeing the same figures holding for this quarter as well.

    — Sanjay Garyali

Customer Acquisition

  • New to Credit Customer Acquisition (share of disbursements) Customer Acquisition · MoM · Medium confidence 20% to 25%

    From 15% today

    So, let's assume that this number MoM increases by about 3% to 4% from 15%, we go to about 20%, to 25%.

    — Sanjay Garyali

Disbursements

  • Disbursement Growth Disbursements · Ongoing · Medium confidence MoM growth
    MoM, you will see disbursements growing now from here.

    — Sanjay Garyali

  • June Disbursements Disbursements · June 2025 · Low confidence a little higher
    June will be a little higher.

    — Sanjay Garyali

Business Strategy

  • MSME Business Focus Business Strategy · Next 2-3 years · High confidence growth
    However, the growth in the 3 years, the actual growth will come from MSME in the next 2 to 3 years. As I said, these are two different leadership teams. So, the MSME will be on growth and future plans and MFI will be how to calibrate and stabilize.

    — Sanjay Garyali

  • MFI Business Focus Business Strategy · Ongoing · High confidence calibrate and stabilize
    So, the MSME will be on growth and future plans and MFI will be how to calibrate and stabilize.

    — Sanjay Garyali

What to watch in Q1 FY26

MSME Business Detailed Growth Plan

End of Q1 FY26
Current AUM ₹673 Cr (March), Disbursements ₹348 Cr (FY25), 'will be on growth'
Target Detailed 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.

Risks & concerns

  • Industry-wide deep credit cycle and operational challenges

    high

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

    Management acknowledged

  • Covenant breaches with lenders

    medium

    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

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

    medium

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

    Management acknowledged

  • Lender caution and sector-wide pain

    medium

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

    Management acknowledged

  • Collection efficiency concerns in specific states (Tamil Nadu)

    medium

    '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

Q&A highlights

6 direct
Growth strategy for MFI and MSME, state classification, and customer overlap. Direct
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

Net flow rate into the first bucket for March, April, and May. Direct
This for the last quarter was about 0.5% to 0.6%, while I'm talking, the same figure is there. For the month of March, it had dipped. This net flow had come down a lot. But at a stable level, we are seeing about 0.5% to 0.6% for the quarter.

Provides a key asset quality metric (net flow rate) and its current trend, indicating stabilization in asset quality.

Asked by Rajiv Mehta

Plan for disbursement ramp-up and PPOP vs. normalized credit cost. Partial
MoM, you will see disbursements growing now from here. That's the confidence that we can share with you and maybe in the next quarter, we can give you more sense on how the year-end plan will be.

Indicates a gradual ramp-up in disbursements but defers a detailed long-term plan to the next quarter, suggesting continued caution and a wait-and-see approach.

Asked by Rajiv Mehta

Operating expenses trajectory and impact of collection team investments. Direct
I think the way we are looking at it is that, while overall these expenses will remain at this level, the mix of this expense, between what you are seeing in collections, where the most of the expense have gone through and you're seeing only partial results, we all know that a collection team takes about 6 months to adjust and then there are PTPs and future commitments by customers.

Explains the elevated operating expenses due to strategic investments in collections and expects results to materialize over time, with a specific 20% estimate for collection expenses.

Asked by Bhavik Dave

Competitive intensity in MFI and ability to acquire customers under new guardrails. Direct
I think it is too premature because the final guardrail has come in April. While we have been overaggressive in terms of overarching guardrails from September onwards as compared to the industry. But, I think it is too premature to say how the industry will pan out.

Acknowledges the evolving competitive landscape and new regulatory guardrails, indicating that the full impact and industry response are still unfolding, requiring a cautious approach.

Asked by Bhavik Dave

Interest income reversal taken in Q4 FY25. Direct
That is approximately Rs. 20 Cr to Rs. 21 Cr.

Provides a specific financial impact of incremental slippages to Stage 3 on interest income for the quarter, aiding in financial modeling.

Asked by Pranav Gupta

NIM stabilization, cost of funds trajectory, and potential yield hike. Partial
I think the color would be coming post Q1 FY26 numbers. As of today, to give a flavor that how the cost of fund is going to behave, I think it is slightly difficult to have ask for.

Management indicates difficulty in predicting NIM and cost of funds stabilization, suggesting ongoing uncertainty in funding costs and deferring detailed guidance to the next quarter.

Asked by Pranav Gupta

Lender comfort, borrowing renewals, and state-wise asset quality concerns (Odisha, Tamil Nadu). Direct
We have received continued support from the lenders by way of extending the condemnation of the breach of financial covenant and extending the new credit lines... all the sector is into some sort of a pain, and there is no clarity around it. Obviously, the bankers will become slightly more cautious.

Highlights continued lender support despite covenant breaches but also acknowledges general caution from bankers due to sector-wide stress, impacting future borrowing ease.

Asked by Pranav Gupta

3 min read 7 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

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.
View original transcript

More Financial Services earnings calls