Fusion Finance Ltd (NSE:FUSION) (Q2 2027) Earnings Call Highlights: Profit Turnaround, GNPA at ...

Negative Points

• Heavy rainfall and floods in five states during Q2 caused temporary disruptions, delaying demand and slightly moderating the timeline for the INR10,000 crore AUM ambition.

• Collection efficiency in Maharashtra dropped to 98.84% in October due to drought-like conditions, with net flow rate at 0.57%, prompting stricter guardrails and a pause on new customer acquisition in affected areas.

• Borrower count declined by 25% as Fusion Finance Ltd consciously tightened credit filters, excluding overleveraged customers, which impacted growth in the near term.

• Despite improvement, the company carries INR271 crore of unrecognized deferred tax assets (DTA), which may take time to utilize and affect future profitability.

• The company refrained from providing a specific year-end AUM number due to moving parts, indicating uncertainty in achieving the INR10,000 crore target within the original timeframe.

Q & A Highlights

Q: With October complete, can you quantify collection efficiency and disbursement trends, particularly for Maharashtra and Karnataka? A: CEO Sanjay Garyali said gross collection efficiency was 99.77% in September and 99.78% in October, with October disbursements up about 10% over the prior monthly average of roughly INR570 crore across both MFI and MSME. Maharashtra, a INR117 crore book, saw October collection efficiency of 98.84% (down from 99.4%) with a 0.57% net flow, while Karnataka remained pristine at 99.95% with negative net flow.

Q: Given seasonal strength in H2, are you pressing the growth button now or waiting to assess flood- and drought-affected areas? A: CEO Sanjay Garyali said the company has already pressed the growth accelerator outside affected pockets, having imposed stricter guardrails and paused new customer acquisition in bordering branches of Karnataka and Maharashtra. He noted that despite two months of floods in five large states, collection efficiencies recovered to better levels in September and October, and demand postponed by the floods is returning.

Q: Are you seeing any stress building in specific districts or states due to rainfall deficit or drought? A: CEO Sanjay Garyali said apart from Maharashtra, where roughly INR50 lakh moved into the first bucket, there is no stress or "baggage" carrying over month to month in other markets. He highlighted that the premium JLG product (income above INR3 lakh, ticket size up to INR1 lakh) has seen a through-the-cycle PAR of just 0.19% in third cycle and above over the last 1.5 years.

Q: Is the higher-ticket MFI loan effectively an individual loan, and what is its share of disbursements? A: CEO Sanjay Garyali clarified that as long as it is structured as a JLG, RBI requires it to be reported under MFI JLG, and the company follows all MFI guardrails even though income exceeds INR3 lakh. CFO Krishan Gopal noted the ticket size remains up to INR1 lakh, and customers with tickets of INR1 lakh or more rose to 3% of the book this quarter.

Q: How confident are you in scaling disbursement growth given macro headwinds, and how should we think about margins incrementally? A: CEO Sanjay Garyali said headwinds are confined to specific geographies, with Maharashtra at just 2% of the book and net collection efficiency there still at 99.43%, and he expects significant growth ahead, evidenced by 10% October growth in both MFI and MSME despite holidays. CFO Krishan Gopal said NIM of 12.52% has scope for another 15-20 bps from yield and 15-20 bps from cost of borrowings, expecting at least 15-20 bps margin expansion next quarter, supported by PTC borrowings at about 8.5%.

Q: What is the FY27 credit cost guidance, and is the H1 profit recurring? A: CFO Krishan Gopal said annualized credit cost is broadly flat at 0.3% for the quarter and 1.2% annualized net of recoveries, which are normalized and expected to continue, and the INR86.47 crore profit contains no extraordinary or exceptional items. CEO Sanjay Garyali guided to a 2%-2.5% credit cost range for the year, noting flows of about 15-16 bps per quarter annualize to roughly 1.8%, with room for shock-related impacts of about 30 bps per quarter.

Q: Why did Stage 3 provision coverage rise from 81% to 93.4%? A: CFO Krishan Gopal explained that the increase followed the sale of a secured portfolio of about INR54 crore (including INR3.5 crore of written-off loans) to an ARC, which will enable SARFAESI action and faster recoveries. He added that total provisions stand at INR209 crore, including INR19.5 crore of management overlays, with PCR of 93.4% on Stage 3 and 67.3% on Stage 2 assets.

Q: What is driving non-repayment in Maharashtra, and when might you loosen the tightened filters? A: CEO Sanjay Garyali said most affected customers have not seen cash flow impacts but are saving defensively amid uncertainty, with less than 0.5% genuinely unable to pay, as dependence on direct agriculture is limited. He said the stricter FOIR and guardrails will remain in place for at least one quarter given that drought, unlike floods, does not resolve quickly.

Q: How does your Maharashtra collection drop compare with competitors, and do you expect a lagged Karnataka impact in November? A: CEO Sanjay Garyali declined to compare with competitors but said Fusion has maintained guardrails at "industry minus 1" since the West Asia crisis and expects limited impact given far stronger customer selection. On Karnataka, he said collection efficiency improved to about 99.95% in October and has been stable for two to three quarters, with rain-fed branches already on separate guardrails.

Q: With premium JLG, individual loans, and higher MSME ticket sizes, what exit AUM and ROA can we expect by March? A: CEO Sanjay Garyali declined to give a new year-end number but said the company enters November with no collection baggage, expects individual loans to scale up, premium JLG to keep growing on strong demand, and MSME to contribute substantially after growing about 20% QoQ in Q2 and 10% in the following quarter. He reiterated confidence in strong growth and noted the 4% ROA has already been achieved.

Q: How much unrecognized deferred tax asset are you carrying, and are other geographies showing drought stress? A: CFO Krishan Gopal said the company carried INR271 crore of unrecognized DTA as of September 30, 2026. CEO Sanjay Garyali said no other geographies show stress, noting reservoir levels dropped in Andhra and Telangana but with no impact on collection efficiencies or ground-level disturbance.

Q: Are you on track for yearly guidance, and do current macros concern you? A: CEO Sanjay Garyali reiterated the three milestones: INR10,000 crore A

For the complete transcript of the earnings call, please refer to the full earnings call transcript .