Fusion Finance Limited (FUSION) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Fusion Finance Ltd. Q1 FY27 Earnings Conference Call. As a reminder, all participants' lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Ms. Hanishi Shah from AdFactors PR Investor Relations. Thank you. And over to you, ma'am.

Hi, thank you so much. Good evening, everyone, and thank you for joining us on the Q1 FY27 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 Q1 FY27 investor presentation, which has been uploaded on the stock exchanges and the company website. I now hand over the call to Mr. Sanjay Vriyali, MD and CEO of Fusion Finance Limited, to begin with the proceedings. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us on Fusion's Q1FI27 earnings call. The last 18 months, there's a significant change that's happened in the microfinance industry. The bottom segment, which constituted of heavily leveraged customers or ones who did not have a steady income stream, moved out of the formal MFI sector. The customer who remains is, in our view, better placed to service her obligations and navigate the external headwinds than she was at the start of the previous cycle. Fusion has used the same period to reshape its portfolio, more selective on customer acquisition, more granular on where we grow, and more technology-led on how we manage the business. Q1 gives us increasing confidence this strategy is working. Business momentum strengthened. Disbursement grew 88% year-on-year to 1783 crores, while AUM grew approximately 4% sequentially to 7702 crores. On the quality front, approximately 85% of the customers disversed in Q1 had just one other lender besides Fusion, and 37% were new to Fusion, a figure that moved closer to 40% in June with a similar trend into July. This is in line with what we have been saying about 40-60 ratio on new versus existing. Last quarter, we described the methodology we use to categorize MFI branches by credit quality, operating performance, and growth behavior. That framework is delivering the outcomes we expected, helping us decide with more precision where to grow, where to calibrate, and where management attention is needed. The result shows in portfolio quality, collection efficiency remains above 99.75%. Risk and growth decisions are increasingly now embedded at the branch level, letting us intervene early when portfolio behavior shifts. We are also evolving how we manage harder bucket collections. Until last quarter, external agencies handled roughly 30% of the hard bucket recoveries. We have now moved that capability fully in-house, combining AI with our own collections and branch teams. We thus run two models on hard bucket collections. One, dedicated collections team engaging customers And two, AI handling initial identification and contact before the branch teams take over. This transition hasn't cost us recovery performance. In fact, we continue to deliver upwards of 35 crore quarterly from the 60 plus DPD book. And 21 crores of this is from the return of portfolio. That gives us greater control over customer engagement, less dependence on external agencies, The same discipline is shaping in our network. In FI27, between now and Q3, we expect to open around 50 new MFI branches while rationalizing about 100 existing ones. The goal isn't just on branch count. It is the right branches in the right markets serving the right customers. Turning to how we are extracting more value from a distribution franchise we have already built, starting with MSME. MSME collection efficiency remains above 99.3%, giving us confidence to move into calibrated expansion. Disbursements moderated in April, typically a seasonally soft month for mortgages, but May and June returned to Q4's average monthly levels. We continue to deliver on a ride-to-win with no deviations on cash flows. In early Q1, we had identified 200 existing MFI branches in attractive MSME catchments, where we would want to source secured business. The customer segments stay distinct, but we will leverage existing real estate for MSME sourcing. We are starting with around 50 of these locations in this quarter and will expand progressively based on our performance. We are also entering Tamil Nadu for MSME for the first time, using our existing MFI retail infrastructure but with a separate MSME team and independent underwriting and credit processes. Within MFI, our PQM model is delivering encouraging value across roughly 250 branches. In parallel, we are also launching an individual loan product across these branches for a select, more engaged segment of MFI customers. Lower on leverage, higher business vintage, and an established repayment track record with Fusion. This isn't simply a larger ticket MFI loan. Initial assessment originates with MFI, but credit evaluation has a close oversight from the MSME credit team. We will scale this gradually based on portfolio behavior with potential for individual loans to reach around 10% of MFI disbursements over time. Together, these initiatives let us extract more value from an existing distribution franchise while keeping customer segments and credit architecture clearly differentiated. We have also identified specific MFI customer segments where we can increase share of wallet and we are developing differentiated products for them. Most of this would be either launched while we are talking or would be launched in the next fortnight. Technology is another area where the conversation at Fusion is changing. In Q1, our AI-enabled platforms handled over 6 million customer interactions, reaching more than 1.1 million customers. Inbound calls are now quality monitored using Gen AI, improving consistency while lowering calling costs. This is translating into earlier risk identification, more consistent customer engagement, and higher productivity. Our new LOS and LMS platforms should strengthen these outcomes. Further, I am very happy to share with you that the initial pilot on migration has been very encouraging and has got thumbs up from the field teams. Now to the financial outcomes. GNPA improved from 3.21% to 2.51% and credit costs further declined to 40 crore, in line with a 2% annualized expectation. The seventh consecutive quarter of reduction. Reported pad for Q1 was 62 crore and ROA of nearly 3%, again in line towards the 4% end-of-the-year ROA that we plan to achieve. On a like-to-like basis, PBT rose from 37 crore in Q4-FI26 to 62 crore in Q1-FI27, up approximately 67% sequentially, our third straight quarter of improving core profitability. There is an important shift underway within these earnings. The first phase of our earning recovery was driven largely by normalizing credit costs. The next phase should increasingly be driven by average AUM growth and operating leverage. We remain focused on reaching the 10,000 crore of AUM by the year FI27, calibrated around portfolio quality and broader operating environment. FI 26 was about rebuilding fusion. FI 27 is about showing what the rebuild fusion can deliver. Q1 is an encouraging start. Our focus now is consistent execution through rest of the year. With that, I will hand over to our CFO, Mr. Krishan Gopal, for their financial performance in greater detail.

Thank you, Sanjay, and good evening, everyone. I am pleased to present our quarter one financial performance. This quarter reflects strengthening across profitability, margins, asset quality, and capital with discipline and well-capitalized growth. The improvement in our book is clearly evident in our strong asset quality matrices. Asset quality continues to improve during the quarter. Our gross NPS stood at 2.51% as of June 30, 26, compared with 3.21% in the previous quarter, while net NPS stood at 0.47%. This improvement was driven by strong collection efficiency, healthy recoveries, and seasoning of a higher quality portfolio. Credit cost declined from $56 crore in Q4 26 to $40 crore in Q1 of FY 27, marking our seventh consecutive quarter of credit cost reduction. The company has also significantly strengthened its balance sheet over the last few quarters. Our focus has been on three key priorities, maintaining a strong liquidity buffer, reducing the cost of funds, and diversifying our funding franchise. These initiatives are now clearly visible into our funding matrices, ALM position, and margin profile, creating a stronger platform for sustainable growth. As of June 30th, 26th, we maintain 1,880 crore of liquidity. In addition to our own balance sheet liquidity, we have approximately 2,300 crore of undrawn sanctioned facilities available for utilization. Further, we have a strong funding pipeline of approximately 2,000 crore. Together, these provide us with significant liquidity cushion and hence our funding flexibility and position us well to meet our obligations. Our capital adequacy ratio stood at 36.95% comfortably above the regulatory requirement. This strong capital position provides us with the sufficient headroom to support our future growth while maintaining a prudent capital structure. I am pleased to report that there is no financial covenant breach as on this quarter end. Our marginal cost of borrowing reduced from 12.6% in Q1 of FY26 to 10.1% in Q1 of FY27, representing an improvement of approximately 250 bps basis as well. Marginal cost reduced by 20 bps from 10.3 in Q4 FY26 to 10.1 in Q1 FY27. While with the reported average cost of borrowing stood at 10.6 to Q1 FY27, which is current quarter, compared to 10.4 in Q4 FY26, which is just the previous quarter. This MTM impact is expected to be not there next quarter onwards. Our external credit rating remains strong with A-Stable from Crystal, A-Stable from Care, and A-Stable from ICRA, while our PTC program carries ratings of up to AA plus SO. Our funding franchise is also well diversified across private, public sector banks, foreign banks, MBFCs, DFIs, and foreign portfolio investors, and across multiple instruments, including term loans, PTCs, direct assignment, ECDs, and NCDs. We have received sanctions of approximately 480 crore under credit guarantee scheme of MFI2 from both private and public sector banks with a further 520 crore currently in the pipeline, primarily from private sector banks. These sanctions under pricing, which is considerably lower than our current marginal cost of borrowing, which is lower than the median credit cost. These sanctions under CGS scheme will further strengthen our funding diversification and increase the share of public sector banks in our overall borrowing profile. Coming to our margins, NIM for Quarter 1 FY27 is at 236 crore, that is 11.93%, compared with 10.29 in Quarter 1 FY26, representing an improvement of approximately 160 bits year-on-year. On a sequential basis, NIM improved by approximately 49 bits points from quarter 4 FY26. Our pre-provisioning operating profit stood at 102 crore in quarter 1 FY27 compared with 87 crore in quarter 1 FY26. This demonstrates the underlying earning strength of the franchise and reflects the tangible benefits of the operating efficiency we have systematically built over the last year. On ECL provisions, we recorded provisions of 40 crore during the quarter under the ECL model. We also had a 74 crore reversal on account of Right House. This translates into provision coverage ratio of 81.5% on stage 3 assets and 64.5% on stage 2 assets, supported by a management overlay of 19.5 crore. This quarter, we have not released any amount from the management overlay. Last quarter, we have released 10 crore from the management overlay. As a result of improving asset quality and better operating efficiencies, profit before tax for the quarter stood at 62.4 crore, up 67% sequentially. Return on assets on PBT improved to approximately 3% annualized, while return on equities stood at approximately 10% annualized. Reflecting gradual normalization of business performance and improving earnings quality. Overall, with the strengthened leadership team, robust capital backing, a new book that is performing well, and seven consecutive quarters of improving asset quality, we begin FY27 with confidence and discipline. As we enter FY27, our focus will remain on maintaining financial discipline, enhancing operational efficiency, and further strengthening our funding franchise to support our long-term sustainable growth ambitions. We will continue to pursue growth in a calibrated manner, ensuring that our provisioning and capital buffers remain aligned with the 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 the Q&A session.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your question to per participant. Should you have a follow-up question, please rejoin the queue. Ladies and gentlemen, this will wait for a moment while the question queue assembles. The first question is from the line of Pre-Rent from CLSA. Please proceed with your question.

Yeah. Hi, team. Congrats on the strong numbers. Yes. Before my questions, I just have a couple of clarifications because I didn't hear some things correctly. So, firstly, sir, you mentioned you've reduced management overlay provisions by 10 crores. That was last quarter, right? Or again, have we done it in one queue?

Yeah. So, sir, can you ask all your questions together? Then we will answer. Yeah. One is my image. Yeah.

Yeah. Yeah. So, that was one second. I didn't catch your comments on branch openings. You said you'll close some, but you'll also open some, if that you could reiterate, because we've actually been shutting branches in the last two, three quarters. So that is there. Secondly, where does NIM really settle over the next three, four quarters, given our, you know, cost of funds trajectory, plus we took those yield hikes? And lastly, you mentioned that we've changed, you know, hard bucket collections. Until last quarter, 30% was done by external agencies. Now, it's your own team. So, is it the sales guy who is doing it, or do you have a separate collections team for this purpose?

So, I suggest we will take only your first two questions, because you are asked four questions. So, first, the management overlay clarification of 10 crore that Krishan will clarify.

So, management overlay this quarter, Q1, we have not released any amount. So, in the 62 crore profit, there is no management overlay release. Now, coming to the last quarter, last quarter, we released 10 crore of management overlay in the P&L. So, that's the factual position.

Yeah, and on the branch opening and shutting, see, there are, if you look at, we have clarified in the past also that there's a certain amount of branches which are present in markets where the headroom to grow is not there, and that is the, so these are all branches which are performing a below par and lesser headroom. So, like I said, there are between about close to 100 branches, which we will shut down between now and Q3. And there are about 50 to 60 new branches that we will open. So, net, we would be about 40 to 50 branches down. And if you also look at it, if you look at more from a, let's say, an AUM perspective, we have given an AUM target of 10,000 crore this year, and we are saying we will grow at about 20-25% CAGR. So, for 12,000 crore of AUM between MFI and MSME, technically, we do not require more than 1,350-1,400 branches. So, there is no point having more than that right now because you understand that both MFI and MSME branch takes just about one month. MSME takes about one month to set up. MFI takes about 15 days to set up.

Understood. Understood. Okay. Yes.

And I'll request this for the other questions if you can come back in the queue.

Okay. Sure. I'll come back. Thanks.

Thank you. The next question is from the line of Rajit Mehta from Yes, Securities. Please proceed with your question.

Yeah, hi, good evening. Congratulations on very good numbers. So, my first question is on the AUM growth target of 10,000 crore. So, now, again, in the context of the approval rate, so when you look at in MFI, the approval rates have, in fact, come down in this quarter. It could be seasonal also, and it could also be a function of maybe some sort of leverage, again, building back in the industry. So, in that sense, see, a lot of heavy lifting of growth will have to be done by MFI in this year because MSME will scale up slowly and individual loans you will be launching later. So, due to heavy lifting of growth in the current year through MFI with current level of approval rates, how would that be, you know, possible? Would you do more sourcing or would you think that the approval rates will itself, you know, move up from where they are?

Right. Any other question, Rajiv, what this is?

Yeah, and you also spoke about, you know, offering more, you know, differentiated products, additional products to select identified MFI customer. And you said that a few of them you already launched and then some will be launching in the next fortnight. So can you also, you know, slightly elaborate on it? Yeah.

Absolutely. So I'll take your first question, which is, let's say, for 10,000 crore of AUM, the disbursement that we require is technically about 44 to 45 percent of the disbursement happens in H1 and about 55 percent happens in H2. Let's say if we divide it like this. Now, if you recall, there is a guardrail that we had built when this West Asia crisis and all the fuel concerns were there. We had introduced a guardrail, Fusion plus 2, saying that new to Fusion, we will not do two lenders other than Fusion. So, because of that, essentially, because of that guardrail, there was a drop of about 3-4% on the approval rate. And these were customers, this was specifically an area that we wanted to avoid because there was no clarity how the West Asia crisis would phase out. But I think the collection's efficiencies have been exceptional, and we have looked at how the Fusion Plus 2, specifically the new customers that we had acquired over the last six to nine months, have there been any deviation during the last four months while this crisis was going on? And it's been pristine and impeccable. And so, what we have done is that in all our category A branches, that's about 80% of the branches, we have gone back to Fusion Plus 2 and only on lower category branches, we are continuing to keep this guardrail. So, that is why you saw the approval rates drop a little. However, there is a pre-approved base that we have looked at, which is the customers which we have lost. And in the last 15 days, we have been experimenting that what is the propensity of onboarding of these customers. So, the first one week of August has been very encouraging. And our problem was less on the new customers. If you see, in the last two quarters, the new to Fusion has been progressively increasing as a percentage. So, we were, what, three quarters back, about 25%. We were at 37%. Just to give you a number, if we segregate June from quarter one, June was close to 39%, and while we are talking, July was 42%. So, new customers is progressively increasing. What we were experimenting with was that on the existing customer segment, is there anything else that we need to do? I think in the last 15-20 days, there are like partially what you asked that the new products or the differentiation that you are doing. So the differentiation is basis the categorization of branches, the ticket size we were offering to the customer, and whether there is a credit person in that. So we have told you that there are about 250 branches where we have credit and these are all large branches. So between these three, we are already in the first seven days of August seeing the run rates climb up on the existing customers. So, we are pretty confident that in terms of what we are expecting in H1, that about 45% of the disbursement that is required to reach to 10,000, we don't need to rely on the individual loan, and you're absolutely right, individual loan will start giving us results only in Q3 onwards, and that too, we don't plan to do 100 crores in a month. So, we are fairly on track on the AOP on both Q1 and the 40 days that have gone in Q2 so far.

Okay. And on the collection, I mean, in this recent two months of July and August, the collection efficiency that you have disclosed for Q1, Is it holding up for the current bucket? Is it holding up for the bucket 1, 2, 3 as well in terms of lesser flows between those buckets?

Absolutely, Rajiv. And the confidence is coming from there. So all the confidence that I am giving you on scale up on existing customers is coming because collection efficiency continues to hold very strong. So, it continues to be upwards of 99.7%, and there is no state where there is any impact we see anywhere across any of our five, six large states where we have higher concentration.

Okay. Thank you.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your question to two questions per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Karthik Srinivas from Unify Future Fund. Please proceed with your question.

Hi, sir. Thanks for the opportunity and congratulations on a good set of numbers. I just had two questions. I'm just rushing to slide number 22. Credit cost is about 40 crores. It says credit cost on other financial assets. So, I'm not, could you please elaborate on what, what does the target financial assets mean? That is, I mean, and I just had a question on the bad debt recovery. So, in FI 26, we had about 54 crores for the entire year, and in Q1, we have had a strong start of about 21 crores. So are we seeing this trajectory improving going forward, or how is that panning out? So this was my first question, and I'll just put my other question also. On an industry, at an industry level, every player is moving towards targeting the very high-quality borrowers, because all the other MFIs are moving into that less than two MFIs, three MFIs borrowing. So, how are we able to reach out to new customers? Are you trying to reach out to a larger set of customers, or how do we expect the growth to happen from where does the growth come from?

So, I'll let Krishan take the question on credit cost, and then I'll explain collection expectation and what are we targeting as customer segment.

So, on the credit cost, the other financial instruments, etc., so there are certain receivables, like the insurance receivable in case of death cases. So, we have strengthened the provision there. So, that is a small line item, apart from the credit cost, which is lying in the other credit cost. Yeah.

So, this is done, you can. Yes. Okay. So on the collections, there are, so like I explained, we have moved from external agencies to completely in-house, and we are seeing sustained recovery there. So there are two things, two models that we are building. One like is the warm body who are actually going and connecting, but the challenge that we were facing was that how do we reach out to, let's say, the entire write-off book where we are recovering from, and having people on the ground for every time, The customer as a free branch is not a viable opportunity. So right now, there are four partners that we have engaged. These are all AI partners. And we all understand that because there are linguistic issues, it was not easy to work with these partners and set up these voice bots. But I think I can tell you that now we have 95% capability to manage this language skill. And we are using AI to reach out to the customer to understand that whether we can then through a warm body do the entire collection. We feel that there is an opportunity of about 600 crores. If we take a rough settlement of about even 30%, that's about 180 crores to be done. If you, let's say, take 15 to 18 months, we are talking about 10 crores every month. So, right now, we are still averaging about 7 crores. So, I think there will be more use of technology and data around this, and with same set of people, We will be, you will continue to see higher delivery and sustained growth on right back from there. Two, on the industry that you are mentioning, see, there are two ways to look at it. One, if you see the, while the demand, even if the demand is static, the supply is shrinking. There are selective players in the market who are able to offer, who have the capital, Who have scaled up their operations, who have built up the right infrastructure. So it is not that everybody can go out and offer loans with clear credit guardrails that are present right now. So within the MFI segment also, there is a huge demand. If you look at our bifurcation, the challenge that we have been able to do a decent job on new customer addition, Which means that the new disbursements that we are doing, continuously the new customers are increasing. And I gave you the number for June, which is close to 40%. In July, it is 42%. So this is continuously increasing. And I think it is also because the capital is scarce and it is with selected players. I think that's also a role to play. Today, where do we see the other growth coming from is that within the MFI sector, there are high-performing customers or customers with very low leverage. The challenge was that income assessment was a problem all these years. But I think the confidence that we have got through the PQM team, which we are servicing 250 branches right now, that is giving us very healthy signals. So that we will continue to scale up. And you will see that eventually we will have two businesses. One is MSME, which is shopkeepers and retailers in tier 3 and tier 4 markets. These are non-rural businesses, semi-urban, tier 3, tier 4. The other is the MFI, where while what we are talking about right now is MFI-JLG, MFI-JLG, let's say, lower leverage customers, then we will also subsequently move into, we have launched the individual loan product, not right now, but towards end of the year or next early year, we will also look at a secured offering for these customers. But like I am saying, the credit will be differentiated. The moment the ticket size goes up beyond 90,000, the credit will come in very strong. So that will be a constant factor across all the growth other than pure JLG. And I think the growth number that we are talking about, we are saying a 20-25% casual growth. I don't think that's a challenge at all. While for this year, we have taken a little higher growth target because of the lower base. But there is confidence in our strategy and how we are going that 20 to 25% casual growth, it is on the cards.

Thank you.

Thank you. Ladies and gentlemen, anyone who wishes to ask a question, please press star and 1 at this time. I repeat, to ask a question, please press star and 1 now. The next question is from the line of Neet Sangoi from PL Capital. Please proceed with your question.

Hi, thank you for the opportunity, and congratulations, team, for a great execution across all the parameters. My first question is around liquidity. So, we have around 1,900 crores of liquidity with capital adequacy upwards of 36-37%. When can we expect this excess liquidity drag, you know, to go away, sir? And this is also important, especially given that, you know, we have seen the cycle bottoming out across the board. We have seen collection efficiencies improving. And also now that we have a fair bit of idea in terms of monsoon and western Asia conflict, when can we expect this drag to, you know, normalize? So that's one. The second one is on the MSME business. Just broadly, how do we, since the MSI business has now, you know, settled down, what's the strategy to, you know, increase or improve the size of the MSME business? And how do we see that over the next three to four years in comparison to the MFI business? What will be the total sort of number in terms of the size of both the businesses in, say, FI29, FI30?

Okay, so Krishan will take the first one on liquidity, excess liquidity.

So, on the liquidity front, we have, you are right, we have kept slightly higher liquidity during quarter one. However, after these geopolitical things and positivity from there, we have already addressed this. We have not borrowed broadly anything in the month of July, and we have brought it 1880 to about 1400 crore. And our plan is to... July, our total borrowing was less than 50 crores. Less than 50 crores. Yeah. So it automatically comes down to around 1,400 crores. 1,400 crores. And this is the level which we want to close the Q2. And this is in line with our internal policy to keep two months disbursements liquidity, which comes to about 1,400, 1,450 crores. So this issue is already addressed. And that was in response to the West Asia crisis.

On the MSME business that you asked, so we currently are at about 800 crores a book, and we are roughly doing about 50 crores a month. So ticket size is about 7.5 to 8 lakhs. The important thing is that last six months, the collection efficiency has been upwards of 99.25%, 99.3%, which gives us the confidence that the strategy that we have been using on credit, which is what we've been saying that we don't want to be taking cash flow calls, we are better off giving a little higher LTV. I think that is paid off and we are getting that confidence. So there are two ways. One, we have within our existing 90 branches, there are about 25-30 branches where you will see productivity significantly going up. There are some specific state differentiations that we have introduced. The second thing is that I explained in my call that there are 200 branches of MFI where we will be leveraging the MFI real estate for acquiring MSME business. Now, these branches are in MSME catchments, so we will not be going to rural markets. It will be semi-urban, tier 3, tier 4, shopkeepers, retail outlets. The branches are in the real estate is in MSME catchment and these will operate as hub and spoke to the main MSME branch. To start with 50 such branches are being taken up immediately and we will keep adding but 200 branches we have identified across north and central where we will be scaling on MSME. So, the way you should look at it is 90 branches of ours which are like completely dedicated MSME and another 200 branches for which we don't require any high level of OPEX which is our existing real estate. Just we will operate as a hub and spoke. One dedicated person in each of those 200 branches. So, you will see this scaling up and our view is that we want to eventually take it to 15% next year and then 20% in the next two years. So, MSME, we are doing multiple things, but the clarity is whatever we do. The clarity is that no deviation on cash flows, and we are creating a right to win in each of these markets. So, MSME, you will see initially 15% and then 20%.

Got it. Thank you, sir, and all the best.

Thank you. The next question is from the line of Akhilej from Nordstar. Please proceed with your question.

Yeah, hi. Thanks for the opportunity. Sir, can you just confirm what is the current value of deferred tax assets on our book and whether any recognition will happen only in Q4? And the second question would be, what's your view on credit guarantee schemes like CGFMU And how do you think about that? Do they form a part of your business plan going ahead?

On the DTA front, our unrecognized DTA amount is around 290 crore. And now the plan is, as and when the profit accrues, we will utilize that rather than utilizing in one shot like we did in the last quarter. So, technically, this amount is sufficient for the next two years' tax outflow. So, we expect DVD to be equal to PAT for about next 24-26 months.

So, on the credit guarantee scheme, I am assuming you are referring to the credit guarantee scheme for the borrower and not the credit guarantee scheme that has been introduced for the banks.

Correct, sir.

Right. So on the credit guarantee scheme for borrowers, we had not registered so far. We plan to register. We have initiated all the documentation. So there are some formalities that we need to complete. But there are two or three markets we have identified where we don't know whether over the cycle it's viable. But we also want to pilot an experiment. So, there are two or three markets where we will be initiating this by end of this quarter, most probably.

Sir, can you quantify how much percentage of your book you might pilot? Like, is it going to be 5% less than that?

Yeah, it will be less than 5% because this will be more on the fresh disbursements.

Right.

Okay.

Thank you.

Thank you. The next question is from the line of Vishal, an individual investor. So, please proceed with your question.

Hello. Yeah, Kong is this, sir. For your results, sir, I have only one question. The monster is coming, and everyone is talking about, you know, and I think our customers are basically on fire. So, based on that, your guidance for 10,000 crore AUM is still intact?

Okay. Vishal, any other question? Then we will answer that. What every time gets impacted wherever there is a headwind, whether it is El Nino or it is floods or any other, is the subprime segment within that overall, let's say, segment. Now, if you look at MFI, same is the challenge. There is a prime segment, there is a mid segment within MFI also. It is not all customers are the same. So, what has happened in the deleveraging cycle in the last one year is that the subprime segment has exited the formal MFI sector. And we have been, in fact, more careful that while we are onboarding customers, our guardrails have been tight enough that while other customers we will give much more, the customers which are at the bottom, we will stay out of. So I think this has helped us and that's why you see state level we have given you collection efficiencies. There have been states which are rain fed and where there have been heat and delayed monsoons. And you see clearly that collection efficiency continues to hold at 99.7, 99.8. And while I'm talking even in July and first seven days of August that have gone by, the collection efficiencies have held very strong. Now, so we are very confident that as long as the customer assessment is done right, which is either through PQMs or through the guardrails that we have developed, the growth targets that we have taken of 10,000 crores, that is not a challenge at all. So we continue to be absolutely confident on the same.

Okay. Thank you, sir. And, sir, GNPA also be improved I

think we have, I will not talk on specifically GNPA, but on the, you are already seeing the trend on GNPA. On the credit cost, we have given a guidance that we are roughly what? 0.1% flow forward monthly, which translates into 0.1, even if you take 0.15, close to about 1.6, 1.7% credit cost. And we have also given guidance that, let's say, if there is some challenge in the market, 25 to 30 bps or 40 bps, that quarter will get impacted. And that's how we have given a guidance of overall 2.5. But I think from a credit cost perspective, as of now, the way first four months or four and a half months have been, we see it closer to 2% rather than 3%.

Okay. Thank you, sir. And all the best for the full year.

Thank you. The next question is from the line of Charlene Kapadia from IISL Capital. Please proceed with your question.

Hi, sir. Thanks for the opportunity and congratulations on a great quarter. Sir, just one question on NIM, sir. Where do you expect it to settle over the year?

Yeah. Do you want to take that? NIM. Where do you think settling by year end?

So, there is a slightly, slightly about 15-20 pips more from here, and that will gradually come into, so by the year end, there will be a, we can see, addition of about definitely at least 15-20 pips, and which takes care of any glitches in the cost of funds, etc.

This is assuming that there is no rate drop. So, let's say there is a minor rate increase. We have already explained to you that we don't see any impact because of that. But unless there is a rate drop, if there is a rate drop, then it can go further.

Okay. Got it, sir. Thank you.

That itself will be 55. So, 55 minus 12 is, let's say, 25, 30. So, we have not done the exact math, but you can just assume how much that will be on a full book disbursement by end of the year.

So, is it fair to assume that 15, 20 BIFs of increase is more of a conservative number from here?

Yes, sir. That's a bare minimum, and the range is about, as Sanjay has mentioned, about 30.

Yeah, I think 15 can be, 15 can go up to 25, sir.

Got it. Thank you.

Thank you. The next question is from the line of Sreejan Sinha from GCLI. Please proceed with your question.

Yeah. Hi, sir. Thank you. Sir, can you please help me quantify the one-time impact on the finance cost? So let's say we were carrying about 500 crores of extra liquidity on the balance sheet. So the quarterly impact of that would be, let's say, closer to 10-odd crores. Plus, Krishnan also talked about some kind of mark-to-market of about 4 crores being included in the finance cost. So is it fair to assume that this 14 crore impact that we see in this finance cost in this quarter, this is not going to occur in the second quarter? And the only impact will be for the growth that you will deliver from here on.

Yeah, so MTM impact will not be there. So MTM is how much we have?

MTM is about 3.93 crores. So let's say 4 crores, Srijan, you will not see in the second quarter onwards. And now the excess liquidity, what is the net impact, net of, let's say, 4 crores?

So the net impact, net of what we have earned on the investments, etc., that impact is about 3.5 crores. So, if we normalize that and don't keep the excess liquidity, that should also not be there.

Okay. So, 8 crore is the delta that you see over the Q1 number.

Broadly, 8 crore.

Okay. And, sir, second question is on the ECL coverages. How do you see that panning out over next, let's say, 2, 3 quarters? So, given that you are seeing significant improvement in your collections.

Yes. So, ECL coverage, if your question is if it has come down, so if we look at MSME and MFI individually, there is no reduction. In fact, maybe a slight bit increase also. However, in the composition, there is a change. In the stage 2 and stage 3, as we have mentioned on that credit cost slide, the MFI stage 2 and stage 3 contribution has come down. And you know MSME, the LGT, etc. are lesser because of the secured and all. So that is how, on the face of it, the coverage seems to be reducing. However, it holds on very well both MSME and MFI respectively. The change on the face of it is just because of the composition change.

Anthar, my final question is, what is the conversation with the rating agencies? Is there any benchmark that they are looking at for a credit rating upgrade?

I think they were, in our last discussion on the issue, they were quite satisfied with our performance. Their concern was the external environment. Now, I think most of the rating agencies have assumed that the external environment has limited impact, especially the West Asia crisis has limited impact on the MFI book. So, we are very hopeful that they will look at it positively. Because from a pure entity perspective, they were extremely positive in our last two conversations.

Thank you, sir.

Thanks, Shrijo.

Thank you. The next question is from the line of Sripal Doshi from Ethelius. Please proceed with your question.

Hi, sir. Thank you for giving me the opportunity. So, my question was on the product portfolio front. So, while we are ramping up MSME, do we have any plans to also launch individual loan as a product? Because as industry players are transitioning, you know, primarily into individual loan and then also launching products like micro-mortgages, so do we have any plans of having individual loan as a category within the product portfolio?

Okay. So, Sripal, I just explained in my call that we have received the board approval also for launching the individual loan product. And we are now doing the system development. Hopefully, by first week of September, we would have done the first individual loan. Now, the important thing is that this is not like microfinance loan from a GLG to individual. So, we will be doing serious credit on this. And we understand credit assessment. So, it is not that we are doing banking credit. So, from the MSME credit that we do, that is 100% assessment, that will be, they will have an oversight on the MFI credit that will be done. We already have about 250 branches where we have a PQM who is a kind of a credit person who reports separately into the credit vertical. He and she will start working immediately on the individual loan. Right now, they are doing credit for MFI. So, the individual loan portfolio will have a specific credit person who will evaluate the loan. And initially, we are looking at roughly an average of about 1.5 lakh ticket size. Customers who have some shop or some outlet, it is not like operating from home, three years business vintage. So, there is a, I think all of us, we understand our background is all credit, only we understand credit. And we are coming out with a very, we have come out with a very robust individual loan product, which we have launched today. Okay. So, that will be an offering to the existing customers to start with. And then depending upon the performance, we will go to new customers. So, but that is the MFI upgrade. Micro loans that you are referring to on the mortgage side, that is, let's say, level 2 of this. So eventually, the credit memory that we want to build is that MSME and MFI will operate two different businesses. They can share each other's real estate. But within MFI also, we may have a secure operating outside to those customers. But we will not do anything without credit. So, anything that is being done outside JLG will have very strong credit around it, and we understand what kind of credit is needed. So, that is an assurance that I want to give you, and we will see good growth eventually, but yeah, obviously, we will go slow, and we will test the market before going all out.

Got it. And initially, what is the pricing that we are looking at for this, for individual loan, as well as, like, you alluded about micromod cases as well, while that is revenue as you highlighted.

Sir, the pricing will roughly be the same, but it could be, we are, it could be about, let's say, 100-bit lower, but roughly the same. So, you can assume same to 100-bit lower.

Got it.

Got it, sir.

Sir, the second question was on the capital raise. So, I'm sorry, I joined the call a little late. So, what is the timeline on capital rates? As the growth on the loan book side is now back, what is the broader timeline that we are looking at in terms of capital rates?

So, while we speak, even after having additional liquidity, our leverage is 2.32 times and capitalistic AC is 36% or so. So, we are very well capitalized and this capital is good for the growth plans which we have mentioned, which is broadly two years. Now, till one and a half years, which is middle of FY27-28, we are fine, and post that, coming on the road to have...

Sir, just to follow up here, what is the Tier 1 ratio that we are keeping in mind as a trigger...

Sir, Sreevan, I said, can you come back in the queue, please? My request is, please...

Sure, sure, sure. Thank you. Thank you for answering my question.

Thank you. Ladies and gentlemen, in interest of time, that was the last question.

Sorry, if that was our last question, then let Sripal continue with that, no? We will just let Sripal finish that then.

Just let Sripal finish that. He left the queue.

Yeah, yeah. So, anyways, I think the question was, what is the level of tier 1? So, the first thing is, in our 36% capital adequacy, it is broadly tier 1 only. And on the lower side, what level we can go. I think regulatory is 15%. However, our internal risk management practices have a graded level of indicators wherein, I mean, we wish to maintain about bare minimum about 23 to 25%. And then there are graded indicators wherein we need to work on the capital raise. That's what we understood from the question, and that was the response, and that is it.

My request is we can take one last question in case there is anybody in the queue. Otherwise, we can end.

Okay. The next question is from the line of Rajiv Mehta from ES Securities. Please proceed with your question.

Yeah, thank you. Yeah, so the question is on how do you see the absolute OPEX, you know, moving, given that, you know, what you plan to do with your, you know, rationalization of branches, adding few branches in. Rolling out, you know, introducing new products on the individual loan side, and, you know, rolling out MSME in existing MFI branches, putting everything together. How do you see your Absolute OPEX moving in the current year? And then what kind of growth one should pencil in for next year in Absolute OPEX?

Absolutely. So I think, Rajiv, last year, if you see, our OPEX was worth about 830 crores. And this year, we are, the first quarter is about 204, 205. I think while, so to the, on an AOP, we had assumed that, we had shared with all of you that we expect a 4 to 5% increase in OPEX. But that is without rationalization and without taking some measures, we are pretty confident that we will be able to save at least some OPEX on that AOP that we have given, which we have already shared that the effort is either through branch rationalization or through other means, we take at least 2-3% reduction in the OPEX that we have shared with you. So, the new product launch or let's say, because we are not creating any separate real estate, it is mostly rationalization of resources. So, you won't see resources actually in absolute terms increasing anywhere significantly. So, the sales guys are what, let's say even if MFI needs about what, 200-300 people and similarly about 100 people in MSME, it doesn't, 300, 400 or 500 people also will hardly have any impact on the overall. That's why deliberately we are saying that we are utilizing the existing real estate of both MFI and MSME. Next year onwards, I think going forward, rather than giving you just one-year perspective, eventually we will be at roughly around 6-7% OPEX, both the businesses put together.

Okay, this is OPEX 2 average a year. Got it. Thank you. Thank you.

Ladies and gentlemen, in interest of time, that was the last question for today. I would now like to hand the conference to Mr. Sanjay Gariyali for closing comments. Over to you, sir.

Yeah, thank you so much. Thanks, everybody, for I think the most important thing is that each one of you, how you have backed us in our tough times. And I think the most important thing that we have realized over the last, I think, 12 to 18 months is that you will see constantly progress happening and we would want to deliver ahead of whatever we are explaining to you. There is growth opportunities that we see and the commitment is that there will be no unnecessary risk we will be taking, but we We see good growth opportunity and good takeoff in the next six to nine months going from here. So, with that, I would want to thank all of you for taking time out for the call.

Thank you. On behalf of Fusion Finance Limited, that concludes this conference. Thank you for joining us and Yumina, disconnect your lines. Thank you.