Fusion Finance Q4 and FY25 earnings: Losses mount despite AUM of Rs 8,980cr; rights issue boosts capital buffer

Why Did Fusion Finance Report a ₹1,225 Cr Loss in FY25?

Fusion Finance Limited, formerly known as Fusion Micro Finance Limited, delivered a sharp financial shock for FY25, posting a net loss of ₹1,224.54 crore for the year ending March 31, 2025. The microfinance-focused NBFC attributed this steep loss to elevated credit costs, significant asset quality challenges, and an accelerated write-off strategy triggered by borrower stress across India’s rural lending markets.

Despite an active borrower base of over 32 lakh clients and a sizable network of 1,571 branches spread across 22 states and 3 Union Territories, the company saw a sharp 21.75% year-on-year decline in assets under management (AUM), which fell from ₹11,476 crore in FY24 to ₹8,980 crore in FY25. Disbursements during the year stood at ₹6,971 crore.

Total income for FY25 dipped 1.8% to ₹2,368.89 crore, while the company’s pre-provision operating profit plunged 28.4% to ₹736 crore. With credit costs soaring and gross NPAs surging, Fusion’s profitability was severely impacted—marking a dramatic reversal from the ₹505.29 crore net profit it had posted in FY24.

What Happened in Q4 FY25 and How Did It Affect Sentiment?

In the final quarter of FY25, Fusion Finance reported a narrowed quarterly loss of ₹165 crore compared to ₹719 crore in Q3 FY25, helped by improved provisioning coverage and cost control. Net interest income (NII) rose to ₹268 crore from ₹223 crore sequentially, and pre-provision operating profit improved to ₹90 crore from ₹65 crore. The credit cost was significantly reduced to ₹253 crore in Q4 versus ₹571 crore in Q3, indicating early signs of stabilisation.

Still, the net interest margin (NIM) dropped slightly to 8.57% from 8.86%, while the cost of funds rose to 10.52%. Gross NPAs improved materially, falling to 7.92% from 12.58% quarter-on-quarter, aided by aggressive provisioning and a Stage 3 coverage ratio of 96.53%. Net NPA stood at just 0.3%.

Despite these improvements, market participants remained cautious. The company’s liquidity coverage ratio remained healthy at 206%, supported by ₹798 crore in liquid assets, or roughly 9.6% of its total assets.

How Did the Oversubscribed Rights Issue Impact Fusion’s Capital Adequacy?

In a crucial move to shore up its capital base, Fusion Finance completed a ₹799.86 crore Rights Issue in April 2025, which was oversubscribed 1.5 times. The allotment of 6.1 crore equity shares at ₹131 each—partly paid at ₹65.50—was completed by May 2. This infusion increased the company’s proforma capital adequacy ratio (CRAR) to over 30%, compared to 22.42% reported at the end of March 2025.

Management highlighted that the success of the Rights Issue signals sustained investor confidence even as the company undergoes a balance sheet clean-up. The raised funds will support Fusion’s long-term solvency and operational resilience.

Why Are There Red Flags in the Audit Report?

Fusion’s FY25 financials received a qualified audit opinion from Deloitte Haskins & Sells. The auditors flagged the company’s inability to retrospectively adjust expected credit losses for earlier periods under Ind AS 8, citing impracticality in estimating past data.

In addition, a material uncertainty regarding Fusion’s status as a going concern was raised. As of March 31, 2025, the company had breached financial covenants on borrowings amounting to ₹4,762 crore. While waivers and extensions were secured from lenders covering approximately ₹4,080 crore of the borrowings, others remain under negotiation.

Despite no immediate repayment demands as of the reporting date, Deloitte warned that Fusion’s future hinges on continued lender forbearance, successful refinancing, and the completion of strategic initiatives such as asset sales and further capital raises.

What Does the Market Say About Fusion Finance’s Stock Performance?

As of May 23, 2025, Fusion Finance shares closed at ₹177, up 3.67% from the previous session. However, this bounce follows a steep fall from its 52-week high of ₹491.55 touched in June 2024. The stock has since lost more than 60% of its market value, now hovering above its April 2025 low of ₹123.96.

The total traded volume for the day stood at 5.1 lakh shares, with a traded value of ₹8.87 crore. The current free float market cap is around ₹1,202.72 crore, indicating reduced investor participation and limited institutional interest.

Investor sentiment remains cautious amid elevated volatility and persistent uncertainties around asset quality and funding stability. However, the sharp fall in gross NPAs and early signs of operational recovery are seen as encouraging by some analysts.

How Are Institutions Reacting to Fusion’s Strategic Course?

Fusion’s board and executive leadership have taken an aggressive stance to reset its portfolio quality and improve governance. CEO Sanjay Garyali emphasized that the company’s new book collection efficiency reached 99.67% in March 2025, pointing to a stabilizing borrower base and robust field-level controls.

The microfinance sector as a whole has witnessed elevated delinquencies post-COVID, with many borrowers facing over-leverage from multiple lenders. Fusion’s management has responded with a series of governance reforms, accelerated write-offs, and a sharper focus on borrower risk profiling.

Despite these corrective actions, Fusion’s FY25 return on equity (ROE) stands at a dismal -54.5%, and return on assets (ROA) is negative at -12.2%. A full-scale turnaround will likely require more time and capital support, and will depend heavily on regulatory easing, macro recovery in rural markets, and tighter credit discipline across the sector.

What’s the Outlook for Fusion Finance?

Fusion Finance is navigating a precarious turnaround, with investor confidence resting on management’s ability to continue improving asset quality, strengthening governance, and sustaining capital buffers. The ₹800 crore Rights Issue has bought the company valuable time, but structural challenges remain.

While Q4 results showed operational green shoots—higher NII, improved provisioning coverage, and reduced credit costs—the steep annual loss and covenant breaches cannot be ignored. Fusion must demonstrate sustained improvement over the next few quarters to restore investor faith and regain its valuation premium in the NBFC-MFI segment.

If it continues to improve provisioning standards, achieve higher collection efficiencies, and reduce NPA ratios without further equity dilution, Fusion Finance could re-enter a growth phase. However, for now, cautious optimism seems to be the dominant institutional sentiment.