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Fusion Finance Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤9th Feb 26

Summary : Fusion Finance achieved Q3 profitability, demonstrating strong financial recovery, improved asset quality, and clear growth strategies for MFI and MSME segments.

Management Perspective positive : Management expressed pleasure in returning to profitability and highlighted strengthened stability. They conveyed confidence in future growth plans and improved financial metrics. New leadership appointments were presented as strengthening the platform for growth.

Concall Report Analysis & Insights

Business Overview

  1. Fusion Finance returned to profitability in Q3 FY26 with a PAT of INR 14 crore.
  2. Achieved broad-based improvements in asset quality, collections, and credit cost.
  3. Disbursements grew to INR 1,594 crore, driven by reduced operational friction and pre-approved clients.
  4. Auditors confirmed the earlier 'going concern' emphasis is no longer relevant.
  5. Collection efficiency reached 99.4% in December, with 94% collected same day.

Future Growth Prospects

  1. Targeting INR 10,000 crore in AUM for FY27, leveraging existing infrastructure.
  2. MSME portfolio expected to double from INR 700 crore to INR 1,500 crore.
  3. MFI book projected to grow from INR 6,500 crore to INR 8,600 crore.
  4. Enhanced LMS and LOS platforms are expected to be operational by May.
  5. Strong capital adequacy (38.8%) and liquidity provide headroom for growth.

Management Insights

  1. Q3 marks an inflection point with controlled stabilization and disciplined execution.
  2. Leadership team strengthened with new CFO and Independent Director appointments.
  3. Growth strategy focuses on utilizing existing infrastructure and pre-approved clients.
  4. Confident in achieving AUM targets with prudent growth and solid capital backing.
  5. Investing in in-house collection teams and technology to improve efficiency.

Signs of Skepticism

  1. Management is not actively pushing for DTA recognition, despite analyst suggestions for rating benefits.
  2. The ECL model is described as 'extremely aggressive,' with a review planned for fairness.
  3. High growth targets are framed as utilizing existing infrastructure, not aggressive expansion.

Risk Factors

  1. Industry cycles can lead to downswings every 2-3 years, requiring strong guardrails.
  2. Potential for customer overleverage, especially for 'Unique to Fusion' clients.
  3. Management is not prioritizing DTA recognition, despite potential balance sheet benefits.
  4. The ECL model is described as 'extremely aggressive,' with a review planned for fairness.

Good To Know

  1. Mr. Krishan Gopal appointed as CFO, effective January 17, 2026.
  2. Mr. Brahmanand joined as an Independent Director, bringing MSME expertise.
  3. Auditors confirmed the 'going concern' emphasis is no longer relevant.
  4. Raised INR 2,127 crore in Q3, diversifying the funding profile.
  5. Rights issue received a robust response, subscribing 99% of INR 400 crore.

Key Drivers

  1. Returned to profitability.
  2. Improved asset quality.
  3. Strong collection efficiency.
  4. Increased disbursements.

Key Analyst Discussions

Competitive Environment

  1. Industry lending rates increased by 100-125 bps; Fusion evaluating a 75-100 bps hike.
  2. Evaluating government-sponsored credit guarantee scheme (CGFMU), not yet enrolled.
  3. JLG model continues, with technology upgrades to support it.

Market Trends & Consumer Behavior

  1. Borrower leverage reduced significantly; only 7% of POS have more than 3 lenders.
  2. Rural customers responded positively to AI-based collection calls.

Financial Highlights

  1. DTA quantum is estimated between INR 380 crore to INR 400 crore.
  2. December collection efficiency was 99.41%, with net flow forward rate at 0.25%.
  3. Credit cost in a stable state is expected to normalize at 3.25% to 3.75%.
  4. Targeting INR 50 crore in quarterly recoveries from 60-plus DPD.
  5. First bucket (1-30 DPD) reduced from INR 87 crore to INR 44 crore.

Product Composition

  1. MSME book will double, becoming a less risky, secured portfolio.
  2. MFI book growth leverages existing branches and customer base.

Strategic Considerations

  1. Pre-approved lending targets individual customers with 19+ months vintage and no delinquency.
  2. Growth is viewed as utilizing existing infrastructure rather than aggressive expansion.
  3. Management overlay will be utilized gradually over 1-2 quarters.