Revenue
Margin
Demand
Guidance
Tone
Event Participants
Executives
3 Sanjay Garyali (Managing Director & CEO), Krishan Gopal (Chief Financial Officer), Hanishi Shah (Investor Relations)
Analysts
9 Akhilesh (North Star), Karthik Srinivas (Unifi Mutual Fund), Meet Sangoi (PL Capital), Piran Engineer (CLSA), Rajiv Mehta (Yes Securities), Shalin Kapadia (IIFL Capital), Shreepal Doshi (Equirus), Srijan Sinha (Generali Central Life Insurance), Vishal (Private Investor)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Disbursements | ₹1,783 crores | Up 88% YoY; momentum strengthened with 85% of Q1 customers having only one other lender beyond Fusion |
| AUM | ₹7,702 crores | Up ~4% QoQ; FY27 target of ₹10,000 crores maintained |
| Net Interest Income | ₹236 crores | NIM at 11.93%, up ~160bps YoY and ~49bps QoQ |
| GNPA | 2.51% | Improved from 3.21% in Q4FY26; seventh consecutive quarter of improvement |
| NNPA | 0.47% | Strong improvement driven by collection efficiency and seasoning of higher quality book |
| Credit Cost | ₹40 crores | Down from ₹56 crores in Q4FY26; trending toward ~2% annualized guidance |
| PCR – Stage 3 | 81.5% | Supported by ₹19.5 crores management overlay; no overlay released in Q1 |
| PCR – Stage 2 | 64.5% | With ₹19.5 crores management overlay outstanding |
| PBT | ₹62.4 crores | Up 67% sequentially; third straight quarter of improving core profitability |
| PAT | ₹62 crores | PBT ≈ PAT due to ₹290 crores unrecognized DTA; expected to last ~24-26 months |
| PPOP | ₹102 crores | Up from ₹87 crores in Q1FY26 |
| ROA (annualized, on PBT) | ~3% | Progressing toward 4% end-of-year target on like-to-like basis |
| ROE (annualized) | ~10% | Reflecting gradual normalization of business performance |
| CRAR | 36.95% | Well above regulatory requirement; internal floor at 23-25% |
| Marginal Cost of Borrowing | 10.1% | Down 250bps YoY; down 20bps QoQ; normalized average cost 10.3% excluding ₹4 crore MTM |
| Liquidity | ₹1,880 crores | Reduced to ~₹1,400 crores in July; plus ₹2,300 crores undrawn sanctions and ₹2,000 crores pipeline |
| Collection Efficiency – MFI | >99.75% | Holding strong in July and first week of August across all large states |
| Collection Efficiency – MSME | >99.3% | Sustained for last six months; no cash flow deviations |
Geographic & Segment Commentary
- MFI (Core Business): Portfolio quality improving with
85% of Q1 disbursements to customers with just one other lender; new-to-Fusion customers at 37% in Q1, rising to ~39% in June and 42% in July. Guardrail (Fusion Plus 2) relaxed back to two-lenders for Category A branches (80% of network) after pristine performance of recent cohorts through West Asia crisis. Branch network being optimized: ~50-60 new branches opening, ~100 rationalized between now and Q3, targeting ~1,350-1,400 branches to support ₹12,000 crores AUM potential at 20-25% CAGR. - MSME (Secured Business): Book at ~₹800 crores with ~₹50 crores/month run rate; average ticket ₹7.5-8 lakhs. Collection efficiency >99.3% enabling calibrated expansion. Identified 200 existing MFI branches in MSME catchments for hub-and-spoke sourcing at minimal incremental opex; ~50 locations starting this quarter. Entering Tamil Nadu for MSME for the first time using existing MFI retail infrastructure but with separate underwriting and credit processes. Target: MSME at 15% of book next year, 20% in two years.
- Individual Loans (New Launch): Board approval received; system development underway with first loan expected by first week of September. Average ticket ~₹1.5 lakhs for customers with 3+ years business vintage; credit evaluation under MSME credit team oversight. PQM model already deployed across ~250 large branches with credit personnel reporting into credit vertical. Potential to reach ~10% of MFI disbursements over time; ₹1.05 lakhs+ tickets trigger strong credit intervention.
Company-Specific & Strategic Commentary
- Digital & AI Transformation: AI-enabled platforms handled 6+ million customer interactions reaching 1.1+ million customers in Q1; inbound calls quality-monitored using Gen AI, lowering calling costs while improving consistency. New LOS and LMS platforms received encouraging field feedback in pilot; migration strengthening earlier risk identification and productivity.
- Collections Rebuild – In-house + AI: Hard bucket collections fully moved in-house from
30% external agency share; two models running – dedicated collections team for direct resolution plus AI voice bots (4 partners, 95% language capability) handling initial identification and contact. Recoveries maintained >₹35 crores quarterly from 60+ DPD book including ₹21 crores from written-off portfolio; opportunity of ~₹600 crores in write-off book with ~30% settlement potential (₹180 crores) over 15-18 months targeting ₹10 crores/month vs current ~₹7 crores. - Funding & CGS Strategy: Received ~₹480 crores sanctions under CGS MFI 2 scheme (additional ₹520 crores pipeline) at pricing considerably below marginal cost; disbursements earmarked toward segments where credit cost expected ~100bps lower than median. Scheme also increases share of public sector banks in borrowing mix. No financial covenant breach as of quarter end; credit ratings stable across CRISIL, CARE, and ICRA with PTC programs rated up to AA.
- Product Differentiation & Share of Wallet: Identified specific MFI customer segments for increased share of wallet with differentiated products being launched around call date; leverage on existing distribution franchise with customer segments and credit architecture kept clearly differentiated across MFI JLG, MSME, and individual loan products.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| AUM | ₹10,000 crores by FY27 end | Disbursement requirement split ~45% H1 / 55% H2; 45% of required disbursement achieved in Q1+Q2 pace; guardrail relaxation on Category A branches and pre-approved base reactivation giving confidence; growth of 20-25% CAGR sustainable beyond FY27 |
| NIM | +15-20bps (up to 25bps) from current levels by FY27 end | Driven by 55bps customer yield hike of which only ~12bps baked into book as of Q1; assumes no rate cut, which would provide further upside |
| Credit Cost | ~2% annualized (range 2-2.5%) | Monthly flow-forward ~0.1-0.15% annualizes to 1.6-1.7%; guidance of 2.5% includes buffer for market disruptions of 25-40bps in any quarter; Q1 at ₹40 crores in line |
| Opex | ~4-5% increase planned; targeting 2-3% reduction from that through rationalization | Q1 at ~₹204-205 crores vs ₹830 crores FY26; new product launches funded via resource rationalization, no significant incremental real estate cost; steady-state opex-to-AUM ~6-7% |
| Liquidity | ~₹1,400-1,450 crores (2 months disbursements) | Already normalized from ₹1,880 crores; no borrowing in June-July except <₹50 crores in July; excess liquidity and ₹4 crores MTM impact (~₹8 crores combined) will not recur from Q2 |
| Credit Rating Upgrade | Awaiting rating agency action | Rating agencies reportedly positive on entity performance in last two discussions; concern on external environment now largely resolved with West Asia crisis having limited MFI impact |
| Capital Raise | Mid-FY28 (middle of next financial year) | Current capital sufficient for ~2 years of growth at 2.32x leverage and 36.95% CRAR; internal graded triggers require maintenance of minimum ~23-25% tier-1; roadshow discussions to begin 6-7 months prior |
Risks & Constraints
| Risk | Context |
|---|---|
| Macro / Monsoon Sensitivity | Management acknowledges MFI not fully insulated from El Niño/monsoon/flood impacts, but notes subprime customer segment already exited formal sector through deleveraging; collection efficiency holding at 99.7-99.8% even in rain-fed and delayed-monsoon states; July and early August collections strong; ¥10,000 crore target maintained |
| Competitive Pressure on Customer Quality | All MFIs targeting same high-quality (low-leverage) borrowers; management argues supply is shrinking with capital scarce among select players, and new-to-Fusion customer share rising (37% → 42% July) indicates continued sourcing ability; differentiated credit guardrails remain |
| Branch Rationalization Execution | Rationalizing ~100 branches while opening ~50-60 could create operational disruption if not sequenced properly; management points to ~1,350-1,400 branches being sufficient for ₹12,000 crores AUM, with MFI branch setup taking ~15 days and MSME ~1 month |
| Rating Downgrade Risk | External credit ratings remain stable across CRISIL, CARE, ICRA; management hopeful of upgrade given positive entity-level conversations with agencies and resolving external concerns |
| CGS Scheme Dependency | Credit Guarantee Scheme MFI 2 provides attractive funding but is tied to |
| disbursement to identified segments with expected 100bps lower credit cost; pilot of CGFMU (borrower-side guarantee) limited to <5% of fresh disbursements across 2-3 markets, viability uncertain | |
| Capital Buffer Risk | With CRAR at 36.95% and internal floor at 23-25%, adequate headroom; DTA of ~₹290 crores keeps reported PAT = PBT for next ~24-26 months, but absorption of DTA into earnings reduces near-term distributable surplus |
Q&A Highlights
Management Overlay & Branch Strategy
- Question: Clarification on ₹10 crores management overlay release — was it this quarter or last? And reiteration of branch opening/closing plan. (Piran Engineer, CLSA)
- Answer: No overlay released in Q1; ₹10 crores release occurred in Q4FY26. Branch net reduction of ~40-50 branches by Q3: ~100 closures of below-par branches with limited growth headroom, ~50-60 new branch openings. Rationale: ~1,350-1,400 branches sufficient for ₹12,000 crores AUM across MFI+MSME; no reason to maintain excess footprint. (Krishan Gopal, Sanjay Garyali)
10,000 Crore AUM Target Dynamics
- Question: Given lower approval rates in Q1 (possibly seasonal or industry leverage building), how will MFI drive heavy lifting toward the ₹10,000 crores target? (Rajiv Mehta, Yes Securities)
- Answer: Approval rate dip was deliberate — Fusion Plus 2 guardrail (max 2 other lenders) caused 3-4% approval rate drop during West Asia crisis; recent cohorts' collections were "pristine," so guardrail relaxed back to Fusion Plus 2 for Category A branches (~80% of network). New-to-Fusion customers rising: 37% Q1, ~39% June, 42% July. Pre-approved base reactivation experiments in last 15 days showing encouraging run-rate climb on existing customers in first 7 days of August. Individual loans will only contribute from Q3; full-year target doesn't depend on them. (Sanjay Garyali)
Credit Cost Components & Recovery Trajectory
- Question: What does "credit cost on other financial assets" mean, and is the ₹21 crores write-back in Q1 (vs ₹54 crores full-year FY26) sustainable? Also, how to source new customers when everyone targets same low-leverage borrowers? (Karthik Srinivas, Unifi Mutual Fund)
- Answer: Credit cost on other financial assets refers to provisions on insurance receivables (e.g., death claims) — a small line item beyond standard credit cost. Recovery trajectory: write-off book opportunity
₹600 crores with ~30% settlement expectation (₹180 crores) over 15-18 months, targeting ₹10 crores/month vs current ~₹7 crores/month; fully in-house collections with 4 AI partners (95% language capability). Growth: supplier base shrinking (capital scarce among select players), new customer addition progressively increasing; two customer segments (MSME shopkeepers/retailers in tier-3/4 and MFI JLG with lower leverage) served with differentiated credit architecture; ticket >₹90,000 triggers strong credit oversight. (Krishan Gopal, Sanjay Garyali)
Liquidity Normalization & MSME Scaling
- Question: When will excess liquidity drag (~₹500 crores above normal) go away, and how will MSME scale vs MFI over next 3-4 years? (Meet Sangoi, PL Capital)
- Answer: Already addressed — June-July borrowings <₹50 crores, liquidity down from ₹1,880 crores to ~₹1,400 crores; Q2 close expected at ~₹1,400-1,450 crores (2 months disbursements), in line with internal policy. MSME book at ~₹800 crores with ~₹50 crores/month; 90 dedicated MSME branches plus 200 MFI branches in MSME catchments leveraged via hub-and-spoke at minimal opex (one dedicated person per branch); ~50 branches starting immediately; target 15% of book next year, 20% in two years; priority is discipline on cash flows with "right to win" in each market. (Krishan Gopal, Sanjay Garyali)
DTA & CGS
- Question: Value of unrecognized deferred tax assets and recognition timing; also views on credit guarantee schemes like CGFMU. (Akhilesh, North Star)
- Answer: Unrecognized DTA ~₹290 crores; utilization will be staggered as profits accrue rather than one-shot recognition (as done last quarter); sufficient for ~24-26 months of tax outflow, keeping PBT ≈ PAT for that period. On CGFMU (borrower-side guarantee): documentation initiated; pilot in 2-3 identified markets by end of current quarter, less than 5% of fresh disbursements to test viability over cycle. (Krishan Gopal, Sanjay Garyali)
Monsoon Impact & Credit Cost Guidance
- Question: Any impact to 10,000 crore target given monsoon concerns? Also GNPA trajectory? (Vishal, Private Investor)
- Answer: Management reiterated confidence — subprime segment has exited formal MFI sector; rain-fed and delayed-monsoon states show collection efficiency holding at 99.7-99.8% through July and first week of August; guardrails and PQM assessment provide protection. Credit cost guidance: ~0.1-0.15% monthly flow-forward annualizing to 1.6-1.7%; even with 25-40bps market disruption, full-year ~2.5% possible; current run-rate suggests closer to 2% than 3%. (Sanjay Garyali)
NIM Outlook
- Question: Where does NIM settle over the year? (Shalin Kapadia, IIFL Capital)
- Answer: At least 15-20bps additional NIM expansion through year-end as 55bps yield hike (only ~12bps currently baked in) progressively flows through the book as disbursements mature. This is the "bare minimum"; if a rate cut occurs, further upside possible. Range of 15-25bps more from current levels achievable. (Krishan Gopal, Sanjay Garyali)
One-Time Finance Cost Impact
- Question: Quantifying non-recurring finance cost impact — excess liquidity carry + ₹4 crores MTM. (Srijan Sinha, Generali Central Life Insurance)
- Answer: MTM impact ₹3.93 crores (~₹4 crores) will not recur from Q2; net impact of excess liquidity (net of investment income earned) ~₹3.5-4 crores also to be eliminated as liquidity normalizes to ~₹1,400 crores. Combined ~₹8 crores one-time drag on Q1 finance cost. (Krishan Gopal, Sanjay Garyali)
ECL Coverage & Rating Upgrades
- Question: How does ECL coverage trend over next 2-3 quarters given improving portfolio quality? And rating agency conversation progress? (Srijan Sinha, GCLI)
- Answer: MFI and MSME ECL coverage individually holding or slightly increasing; apparent reduction driven purely by composition shift (stage 2/3 contribution down in MFI, MSME secured with lower LGDs, so blended coverage appears lower without underlying weakening). Rating agencies satisfied with entity performance in last two discussions; concern was external environment, now largely resolved with West Asia crisis impact limited; hopeful of positive action. (Krishan Gopal, Sanjay Garyali)
Individual Loan Launch Details
- Question: Plans for individual loan as a category, pricing, and capital raise timeline? (Shreepal Doshi, Equirus)
- Answer: Board approval received; product launched today; first loan by first week of September. Average ticket ~₹1.5 lakhs; customers with shop/outlet, 3+ years business vintage. Credit person (PQM) dedicated for evaluation reporting into credit vertical; ~250 branches with PQM already active. Pricing ~100bps lower than JLG (roughly same). Capital raise: current capital sufficient for ~2 years; will be on road to discuss with investors by middle of next financial year (FY28); internal tier-1 floor ~23-25% with graded indicators below that triggering capital action. (Sanjay Garyali, Krishan Gopal)
Opex Trajectory
- Question: How does absolute opex move given branch rationalization, individual loan rollout, MSME expansion in MFI branches? (Rajiv Mehta, Yes Securities)
- Answer: FY26 opex ~₹830 crores; this year AOP assumed 4-5% increase, but branch rationalization and other measures expected to save 2-3% from that level; new product launches won't materially lift opex as they ride existing real estate and rationalized resources (additional ~400-500 people across MFI and MSME will have minimal impact). Steady-state opex-to-AUM ~6-7% for both businesses together from next year. (Sanjay Garyali)
Key Takeaway
Fusion Finance delivered a strong Q1 FY27 with AUM at ₹7,702 crores (+4% QoQ), disbursements up 88% YoY to ₹1,783 crores, and GNPA improving from 3.21% to 2.51% – the seventh consecutive quarter of asset quality improvement. Credit cost fell to ₹40 crores (from ₹56 crores), PBT rose 67% sequentially to ₹62.4 crores, and NIM expanded to 11.93% (up 49bps QoQ, 160bps YoY). Management is emphasizing a shift from credit cost normalization to AUM growth and operating leverage as the next phase of earnings recovery, targeting ₹10,000 crores AUM by FY27 end underpinned by 20-25% CAGR growth. Strategic pillars include in-house AI-enabled collections (write-off recovery opportunity ~₹600 crores), MSME scaling via 200 existing MFI branch catchments targeting 15-20% of book, individual loan launch (board approved, first disbursement September), and CGS MFI 2 funding at sub-marginal pricing. The near-term watch-points are execution of the ~100 branch rationalization vs 50-60 additions, sustained collection efficiency (99.7%+) through monsoon season, and delivery against the AUM trajectory with only 45% of required H1 disbursements achieved so far; opex discipline of 2-3% savings from AOP targets remains to be proven as product breadth expands.