Earnings Call Transcript Analysis Report #
Financial Performance #
Fusion Finance Limited reported a challenging quarter financially, marked by proactive measures to strengthen the balance sheet amidst industry headwinds.
Assets Under Management (AUM) #
Stood at INR10,599 crores as of December 2024, reflecting a moderation due to tightened underwriting norms.
Net Collection Efficiency (Current Portfolio) #
Improved month-on-month, rising to 97.7% in December 2024 from 96.1% in Q2 FY25.
Asset Quality #
- Gross NPA: 12.58% as of December 2024.
- Net NPA (NNPA): Reduced to 1.7% in December 2024 from 2.4% in September 2024.
- Provision Coverage (Stage 3): Significantly enhanced to 88% in December 2024 from 76% in September 2024.
- ECL Provision: INR572 crores in Q3 FY25 and INR1,615 crores in 9M FY25.
Profitability #
- The company prudently reversed all deferred tax assets (DTA) accrued to date and did not recognize interest on Stage 3 loans.
- Interest Reversal/Non-recognition: Approximately INR95-98 crores in Q3 FY25 related to Stage 3 assets and write-offs.
- Pre-Provisioning Operating Profit (PPOP): INR646.36 crores for 9M FY25.
Capital Adequacy Ratio (CAR) #
Healthy at 22.2% as of December 31, 2024. Expected to improve to over 30% post the planned INR800 crores rights issue.
Liquidity #
Strong, with INR1,151 crores as of December 31, 2024, and INR1,400 crores as of February 12, 2025. Raised INR395.18 crores in Q3 FY25 and INR4,450 crores in 9M FY25.
Cost of Funds #
- Marginal Cost of Funds (9M FY25): 10.15% (a reduction of 43 bps YoY). For Q3 FY25, it was 11.3%.
- Average Cost of Funds (9M FY25): 10.21% (decreased by 32 bps YoY).
Net Interest Margin (NIM) #
10.66% for 9M FY25, a decrease of 44 bps YoY, largely due to interest reversal on write-offs and non-recognition of interest on Stage 3 assets.
Cost-to-Income Ratio #
47.38% in 9M FY25. Adjusted for interest reversal, it would be 43.1%.
Strategic Initiatives & Business Updates #
Management highlighted several strategic actions to navigate the current environment and position for future stability.
Proactive Stress Management #
Credit Underwriting Tightening #
Implemented stringent credit criteria, “even tighter than existing MFIN guardrails,” leading to a superior quality portfolio build-up since August 2024.
Customer Deleveraging #
Significant downtrend in customers with multiple lenders. “About 80% of our clients fall under Fusion plus less than, equal to 2 lenders bucket as of December ‘24.”
Rights Issue #
Planned INR800 crores rights issue, with SEBI approval awaited.
MSME Vertical Focus #
The MSME portfolio reached INR630 crores AUM in 9M FY25, with 85% secured loans.
Technology Enhancement #
Introduced “FinDost,” an in-house LOS and LMS platform for MSME. Initiated development of a hybrid model for the microfinance vertical.
Covenant Waivers #
Successfully obtained waivers from a majority of lenders for covenant breaches. For September ‘24 breaches, waivers cover 83.29% of borrowings. For December ‘24 breaches (INR5,288 crores), waivers for INR4,145 crores obtained.
Operational Adjustments #
- Reduced field officer customer load from ~550 to ~400.
- Enhanced collection support through telecalling and dedicated teams for high DPD branches.
- Revised incentive structures for field staff.
Market & Competitive Landscape #
The company acknowledged a challenging market but sees long-term benefits from evolving regulations.
Industry Stress & Guardrails #
Recognized existing stress. The new MFIN guardrails (effective April 1, 2025) are expected to have a “good impact in the long run,” though microfinance customers “may feel credit squeeze for some time.”
Customer Behavior #
Competitive Positioning #
Emphasized proactive measures taken ahead of industry guardrails, leading to “minimal impact of new MFIN guardrails.”
Market Overheating Cooling Off #
Risk Factors & Challenges #
Management was transparent about the ongoing challenges.
Portfolio Stress #
Acknowledged “building stress” at the start of FY25, leading to proactive measures. Net flow rates from current to PAR 1-30 showed improvement after Q2.
Loan Officer Attrition #
Admitted to “very high attritions, especially in August, September,” which have since “come down to under 50% now” but remain a concern.
Covenant Breaches #
Ongoing breaches of financial covenants with some lenders. “As on December ‘24, we are in breach of financial covenant amounting to INR5,288 crores.” Discussions ongoing with remaining lenders.
Regulatory Uncertainty (Karnataka Ordinance) #
While NBFCs are excluded, management is “cautious in Karnataka… watching the situation” regarding potential collateral damage from a new ordinance regulating lending.