Fusion Finance reports higher provisioning, Rs 305cr loss in Q2 FY25

Fusion Finance Limited, one of India‘s leading NBFC-MFIs, reported a net loss of ₹305 crore in the second quarter of FY25, driven by elevated provisioning levels. The company’s financial performance, detailed in its unaudited results, highlighted both its growth trajectory and the challenges posed by increasing delinquencies in the sector.

AUM and disbursement growth underline potential

Fusion Finance’s Asset Under Management (AUM) surged by 15.41% year-on-year, reaching ₹11,571 crore in Q2 FY25 compared to ₹10,026 crore in Q2 FY24. Despite subdued growth on a quarter-on-quarter basis, the company’s disbursements stood at ₹1,661 crore, showcasing its continued efforts to expand its lending footprint.

The borrower base grew to approximately 38.52 lakh, supported by the addition of 65 new branches, bringing the total network to 1,463 branches across 22 states and three Union Territories.

Higher provisioning impacts profitability

The company’s pre-provision operating profit (PPOP) grew 17.39% year-on-year to ₹284 crore, reflecting robust core operations. However, significant provisioning due to industrywide credit issues led to a net loss of ₹305 crore. Fusion Finance’s gross non-performing assets (NPA) increased sharply to 9.41% in Q2 FY25 from 2.68% in Q2 FY24, a major factor behind the escalated provisioning levels.

Managing Director and CEO Devesh Sachdev acknowledged the challenging quarter, stating that the company is closely monitoring borrower credit behaviour and implementing stricter disbursement criteria. He emphasised the company’s focus on field collections and liquidity management, ensuring a sustainable approach to future growth.

Financial highlights signal operational strength

The company reported a 23.19% year-on-year increase in total income, reaching ₹704 crore in Q2 FY25. Net interest income (NII) grew by an impressive 30.46% to ₹397 crore, supported by a healthy net interest margin (NIM) of 11.48%. Notably, the cost of funds decreased to 10.05% compared to 10.55% a year ago, reflecting improved operational efficiency.

Despite the challenges, Fusion Finance maintained a robust capital adequacy ratio (CAR) of 24.39% and reported cash and equivalents of ₹1,793 crore, accounting for 15.62% of its total assets.

Industry dynamics and strategic outlook

The NBFC-MFI sector continues to grapple with post-pandemic credit stress and changing borrower dynamics. Fusion Finance has outlined a cautious approach, curbing aggressive expansion while prioritising collections and credit quality. The company is also preparing to raise ₹550 crore via a rights issue in the current quarter, aiming to bolster its capital base.

Sachdev reiterated the firm’s commitment to prudent growth, stating that pre-provision profitability remained stable despite external pressures. He expressed confidence in the company’s long-term resilience, backed by its diversified operations and customer-centric approach.

Expert opinion: navigating industry turbulence

Analysts suggest that Fusion Finance’s proactive provisioning approach, while denting short-term profitability, reflects a necessary adjustment to evolving industry risks. With its extensive branch network and strong borrower base, the company is well-positioned to rebound as sectoral headwinds subside.