Fusion Finance Ltd (FUSION) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Fusion Finance Limited Q2 and H1 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Haneesha Shah from Adfactors PR, Investor Relations. Thank you, and over to you.
Haneesha Shah (Adfactors PR): Thank you, Rutuja. Good evening, everyone, and thank you for joining us on the Q2 and H1 FY '27 earnings conference call of Fusion Finance Limited. We have the company's senior management team with us on this call. Before we begin, I would like to remind you that certain statements made in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Q2 FY '27 investor presentation which has been uploaded on the stock exchanges and the company's website. I now hand over the call to Mr. Sanjeev Beryani, MD and CEO of Fusion Finance Limited, to begin with the proceedings. Thank you, and over to you, sir.
Sanjeev Beryani (Fusion Finance Ltd): Yeah. Thank you, Haneesha. Good evening, everyone. On behalf of the entire Fusion team, I would like to extend
Sanjeev Beryani (Fusion Finance Ltd): warm greetings to you and your families. If there is one thing, the last few quarters have reinforced for us, it is that in a constantly evolving environment it is more important to navigate by the compass, then by the clock. There are several moving parts around us, industry dynamics, customer behavior, credit conditions and emerging growth opportunities. When we laid out our priorities, we were clear about four things, restoring growth, strengthening credit discipline, delivering sustainable profitability, and building a more diversified institution. Those priorities remain our compass. We also articulated three financial milestones, an AUM ambition of 10,000 crore, credit cost of 2 to 2.5%, and an exit quarter ROA of 4%. I'm pleased that we have made meaningful progress on two of these ahead of our original timelines. Credit costs are sub 2% and we have already achieved an annualized ROA of approximately 4% this quarter. The progress gives us confidence in the direction of our business, even as we remained measured about the pace of growth. Q2 performance, our disbursements stood at 1,726 crore representing a 33% year-on-year growth, while remaining broadly flat sequentially. The AUM subsequently increased to 8,007 crore, 14% year-on-year growth. During the quarter five of our markets experienced heavy rainfall and floods resulting in temporary disruptions to customer accessibility during July and August. However, recovery through September was encouraging and collection efficiency returned to 99.75% with net flow rates falling below 0.10%. This is a testimony to our well disciplined approach towards customer acquisition. Portfolio quality continue to improve with GNPA declining to 1.6% from 2.5% in the previous quarter. Importantly, even if we consider the 54 crore ARC transaction as a part of the loan book, the GNPA would still be 2.28%, reflecting an improvement over the previous quarter 2.5%. Credit quality and customer leverage. We believe sustainable credit performance begins at origination. One of the most important changes we have made is how we assess customer leverage and repayment capacity. 83% of our onboarded customers in MFI have no more than two lending relationships, including Fusion. This is a deliberate choice. We continue to monitor lender count, indebtedness, repayment capacity, supported by differentiated credit templates. Our on-ground credit assessment program has now expanded from approximately 200 branches to 950 branches now, giving us greater control over customer selection. These initiatives are designed to strengthen the quality of our new origination. Early-bucket collection performance has remained resilient, same-day X-bucket collections stood at 97.9, with monthly gross and net collection efficiencies at 99.7 and 99.84% respectively on the quarter basis. Our objective is not simply to maintain strong collection performance today, but to build a portfolio that delivers more predictable credit outcomes over time. Recoveries and legacy portfolio. Alongside strengthening new originations, we continue to address the legacy stress portfolio. You are aware that we brought recovery activities for the 90 DPD portfolio in-house supported by dedicated teams, analytics and specialized recovery capabilities. We are also deploying structured interventions including Lok Adalats, legal officers, and legal notices wherever appropriate. During the quarter recoveries from the 90 DPD portfolio exceeded 30 crores, including 21 crores from written-off accounts. While the new book will determine our future earning quality, recoveries from the legacy portfolio can progressively unlock additional value. Growth and diversification. Turning to growth, we see three complementary opportunities. First, core microfinance. We will deepen our presence where portfolio behavior supports growth, while continue to maintain focus on disciplined expansion. Second, premium JLG, which is income level greater than 3 lakhs and individual lending. These products and segments allow us to deepen relationships with eligible customers and serve differentiated credit needs. Our Vishwas product, that we had shared with you which we launched in the last quarter, has made an encouraging start accounting for 20% of MFI disbursements during September and now in October. Third, secured MSME. We are expanding our reach by leveraging our existing microfinance infrastructure. Approximately 10% of MSME disbursements are now originated
Sanjeev Beryani (Fusion Finance Ltd): through the MFI branch network, and we have expanded from 50 to 100 MFI branches acting as MSME spokes. Our focus remains on cash flow-based underwriting and secured lending to suitable customers. The strategic advantage of these three businesses that we just spoke about is to allow us to serve a broader range of customer needs through infrastructure and customer relationships we already have established. Operating leverage and technology. We are pursuing four interconnected operating initiatives. The first is improving branch productivity and operating leverage. The average MFI AUM per branch has improved to 5.4 crores from 5.1. We are rationalizing approximately 102 branches while planning to open another 50 branches in markets which offer strong opportunities. The second is generating growth through our existing distribution infrastructure. By expanding the premium JLG individual lending and MSME sourcings through our network, we aim to increase the earning capacity of our branches without a proportionate increase in infrastructure or operating expenses. The third is strengthening credit underwriting through differentiated credit templates and more rigorous customer assessment. This should allow us to pursue growth opportunities while maintaining discipline around customer leverage and repayment capacity. And the fourth is building stronger in-house recovery capabilities, particularly for the harder delinquency buckets. Together these initiatives should support greater productivity, more consistent credit performance and better operating leverage over the medium term. Technology will be an important enabler of this transformation. Our new LOS and LMS systems have been implemented now, while I talk across 15% of the branches with broader transition targeted for completion before the financial year end. We're also developing AI capabilities across collections, customer service and credit assessments. Our objective is to create a more scalable operating platform with greater underwriting consistency, stronger controls, and improved productivity. Our way ahead, outlook, and priorities. Our medium-term ambition remains AUM growth of 20% to 25%, ROA of 4% plus, and credit cost in the range of 2% to 2.5%. We are entering the next phase of growth with a focus on building a more diversified, productive, and resilient franchise. This will be supported by disciplined underwriting, very strong credit costs, continued investment in technology, and strong commitment to sustainable and profitable growth. Our 10,000 crore AUM ambition remains firmly on track as a medium term objective. The disruptions during the first half have led to a slight calibration of the timeline. We are moving to integrated branch led model which will cater to our core lending products which are as follows. First, our JLG product which is going to be the major portion of our business. We will continue to evolve underwriting standards based on incremental data and experience. Second, is premium JLG borrowers income greater than 3 lakhs. Borrowers which have graduated and whose income has increased from the 3 lakh limit will be offered the loan based on repayment history and track record. Third is the individual loan product for small businesses under the MSME secured product umbrella. This allows us to diversify our lending portfolio by benefiting from capital efficient expansion and operating leverage. Hence our branch infrastructure will enable growth and diversification vision of the company enhancing operational efficiencies without any increase in OpEx. The early improvement in Q3 disbursement momentum, with 10% to 12% growth over the previous quarter average, is encouraging and reflects the gradual improvement in our operating environment. While this provides a starting point, we remain disciplined in translating this momentum into sustainable portfolio growth in line with our medium term ambitions and underwriting standards. With that, I will hand over to Krishna to take you through the financial performance in greater details. Thank you.
Krishan Gopal (Fusion Finance Ltd): Thank you, Sanjay, and good evening, everyone. I'm pleased to present our quarter two financial performance. Our quarter two performance demonstrates clear improvement across key businesses and financial metrics, including growth, margins, operating efficiency, asset quality, cost of borrowings, and profitability, reflecting reflecting disciplined execution and a focus on well-capitalized growth. Asset quality continues to improve during the quarter. Our gross NPA stood at 1.6% as of September 30, 2026, compared to 2.51 in the previous quarter, while the net NPA stood at 0.11%. If we would not have done the ARC transaction, our gross NPA is is
Krishan Gopal (Fusion Finance Ltd): stood at 2.28%. This improvement was driven by strong collection efficiency, healthy recoveries and seasoning of a higher-quality portfolio. Credit costs remained constant on a sequential basis, despite floods in the five states. During the quarter, company strategically decided to sell secured loans of INR54 crore, including INR3.5 crore of written off loans, to asset reconstruction company. This will enable the company to impose SARFAESI and get the recoveries quicker. Our focus has been on reducing the cost of funds and maintaining a stronger liquidity buffer. These initiatives are now clearly visible into our funding metrics, ALM position and margin profile. One of the most significant achievement during the quarter was the continued reduction in the marginal cost of borrowing. The marginal cost of borrowing declined to 9.35% in Q2 of FY '27 from 12.16% in Q2 of FY '26, representing a year-on-year improvement of 281 basis points and 74 basis points improvement on quarter-on-quarter basis from 10.1% in Q1 of FY '27, which was last quarter. The marginal cost of borrowing stands at 9.39% for the quarter, even when we exclude the borrowing through CGS scheme II for MFIs. This makes the fifth consecutive quarter of decline in marginal cost of borrowing. In this quarter, we have raised INR320 crore through PTCs, which enhanced its share in overall borrowings book to double-digit visit, which is 10%. The company secured PTC funding at an all-in cost of around 8.5% during the quarter. We have further scope to increase the PTC transactions in coming quarters, and that will help company to keep the marginal cost of borrowing in control in an increasing interest rate scenario. In addition, we are working to reduce reliance on direct assignment transactions quarter-on-quarter. The DA outstanding as a percentage of AUM has come down from 13.75% to 12.65% last quarter. We maintained strong negotiating leverage and adopted a disciplined, cost-focused approach to funding decisions. In last quarter, one of the key priorities was to strategically utilize the CGS MFI II Scheme, ensuring that its benefit were maximized through prudent allocation and a lower all-in cost of borrowing. As a result, the company accepted selected sanctions aggregating to about INR468 crore at an average all-in cost of 9.23%, out of the available sanctions of about INR1,100 crore under CGS scheme. We maintained a firm stance of not taking sanctions that did not align with company's economic value and carried unfavorable commercial terms. Our disciplined treasury approach and proactive liability management resulted to reducing the marginal cost of borrowing at 9.35% for the quarter. On the liquidity front, we have maintained INR1,661 crore of liquidity. In addition to this, we have INR2,800 crores of undrawn sanctioned facility available for utilization at any point of time. Further, we have a strong funding pipeline of INR4,500 crores. Together, these provide us with significant liquidity cushion, hence, our funding flexibility and position us well to meet our obligations. Our capital adequacy ratio stood at 36.75%, comfortably above the regulatory requirement. Our external credit rating remains strong with A- Stable from CRISIL, A- Stable from CARE and A- Stable from ICRA, while our PTC program carries ratings of up to AA+ (SO). Coming to our margins, our NII for Q2 '27 is at INR265 crore, that is 12.52% compared with 10.85% in Q2 of FY '26, representing an improvement of 167 bps year-on-year. On a sequential basis, it improved by 59 bps from Q1 '27, contributed by improving yields and reduced cost of borrowing. The reduction in the cost of borrowing has come after the lenders have derived confidence after extensive discussions and due diligence. We are confident to sustain these margin levels and further improve upon these. Our pre-provisioning operating profit stood at INR125 crore in Q2 of FY '27, compared with INR89 crore in Q2 of FY '26, an increase of 40%. Quarter-on-quarter, PPOP increased
Krishan Gopal (Fusion Finance Ltd): 22% demonstrating the underlying earning strength of the franchise, reflects, reflecting the tangible benefits of the operating efficiencies we have systematically built over the last few quarters. Our credit cost is 39 crore as compared to 39 crore during the quarter, broadly remaining flat even in a tough quarter. Our total provision stand at 209 crore which includes 19.5 crore of management overlay. This translates into provision coverage ratio of 93.4% on Stage 3 assets and 67.2% on Stage 2 assets. As a result of improving asset quality and better operating efficiencies, present quarter makes a clear turnaround story with profit for the quarters standing at 86 crore compared to loss of 22 crore. And on a sequential basis, our profit is up by 40% from 62 crore last quarter. ROA improved to 4% annualized while ROE stands at 13% annualized, reflecting normalization of business performance and improving earning quality. Overall, with the strengthened leadership team, robust capital backing, and new portfolio underwritten through stringent guard rails, we begin festive season with a lot of confidence in achieving new scale in the coming quarters. We will continue to pursue growth in a disciplined manner ensuring that our provisioning and capital buffers remain aligned with evolving risk environment. With improving asset quality, robust capital adequacy, strong liquidity, and diversified borrowing profile, we are confident of delivering a sustainable and responsible value creation over the long-term. Thank you. With that, I would like to open the floor for a Q&A session.
Moderator: Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Participants may please note to please limit their questions to two per participant and can ask both questions at the same time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Meet Sangoi from PL Capital. Please go ahead.
Meet Sangoi (PL Capital): Hi. Am I audible?
Sanjeev Beryani (Fusion Finance Ltd): Yes Meet. Hi.
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