Fusion Finance (NSE:FUSION) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Fusion Finance Limited Q1 FY 'twenty seven Earnings Conference Call. After the presentation concludes. Please note that this conference is being recorded. I now hand over the conference to miss Hanishi Shah from IT Masters 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 q one FY twenty seven earnings conference call of Fusion Finance Limited.

0:49 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 q one FY twenty seven investor presentation, which has been uploaded on the stock exchanges and the company website. I now hand over the call to Mr. Sanjay Varyali, 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 Q1 FY twenty seven earnings call. The last 18, there's a significant change that's happened in the microfinance industry.

1:37 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 crores, while AUM grew approximately 4% sequentially to INR7702 crores.

2:28 On the quality front, approximately 85% of the customers disbursed to 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 forty-sixty 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.

3:15 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 directly towards resolution and two, AI handling initial identification and contact before the branch teams take over.

4:07 This transition hasn't cost us recovery performance. In fact, we continue to deliver upwards of INR 35 crore quarterly from the 60 plus DPD book and INR 21 crore from this of this is from the return of portfolio. That gives us greater control over customer engagement, less dependence on external agencies and a more scalable recovery model. The same discipline is shaping in our network. In FY twenty twenty seven, 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.

4:54 Turning to how we are extracting more value from our 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 our right 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 segment stayed distinct, but we will leverage existing real estate for MSME sourcing.

5:39 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 two fifty 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.

6:25 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.

7:15 In Q1, our AI enabled platforms handled over 6,000,000 customer interactions, reaching more than 1,100,000 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'm 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 cost further declined to INR 40 crore, in line with a 2% annualized expectation, the seventh consecutive quarter of reduction.

8:12 Reported PAT for Q1 was INR 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 INR 37 crore in Q4 FY 'twenty six to INR 62 crore in Q1 FY 'twenty seven, 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 learning 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 INR 10,000 crore of AUM by the year FY 2027, calibrated around portfolio quality and broader operating environment.

9:08 FY '26 was about rebuilding Fusion. FY 2027 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 the 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 NPA stood at 2.51% as of 06/30/2026, compared with 3.21% in the previous quarter, while net NPS stood at 0.47%.

10:06 This improvement was driven by strong collection efficiency, healthy recoveries and seasoning of a higher quality portfolio. Credit costs declined from INR 56 crore in Q4 twenty six to INR 40 crore in Q1 of FY 'twenty seven, 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.

10:52 As of June thirty, 'twenty six, we maintained INR $18.80 crore of liquidity. In addition to our own balance sheet liquidity, we have approximately INR 2,300 crore of undrawn sanction facilities available for utilization. Further, we have a strong funding pipeline of approximately INR 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'm pleased to report that there is no financial covenant breach as on this quarter end.

11:43 Our marginal cost of borrowing reduced from 12.6% in Q1 of FY twenty twenty six to 10.1% in Q1 of FY 'twenty seven, representing an improvement of approximately two fifty bps points year on year. On a sequential basis as well, marginal cost reduced by 20 bps from 10.3 in Q4 FY 'twenty six to 10.1% in Q1 FY 'twenty seven. While with the reported average cost of borrowing stood at 10.6%, the underlying cost trajectory is more encouraging. After adjusting the INR 4 crore MTM impact or to avoid that INR 4 crore impact, our normalized average approximately 10.3% in Q1 FY 'twenty seven, which is current quarter compared to INR 10.4 crores in Q4 FY 'twenty six, which is just the previous quarter. This MTM impact is expected to be not there next quarter onwards.

12:50 Our external credit rating remains strong with A minus stable from Crystal, A stable from Care and A minus 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, NBFCs, DFIs and foreign portfolio investors and across multiple instruments, including term loans, PTCs, direct assignment, ECBs and NCDs. We have received sanctions of approximately INR $4.80 crore under credit guarantee scheme of MFI two from both private and public sector banks with a further INR $5.20 crore currently in the pipeline, primarily from private sector bank.

13:40 These sanctions under CGS scheme are at an attractive pricing, which is fact in one that in So have significant that increase expected to be around 100 bps 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 one FY 'twenty seven is at INR $2.36 crore, that is 11.93% compared with INR 10.29 in quarter one FY twenty twenty six, representing an improvement of approximately 160 bps year on year. On a sequential basis, NIM improved by approximately 49 bps points from quarter four FY 'twenty six.

14:42 Our pre provisioning operating profit stood at INR 102 crore in quarter one 'twenty seven compared with INR 87 crore in quarter one of FY 'twenty six. This demonstrates the underlying earnings strength of the franchise and reflects the tangible benefits of the operating efficiencies 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 INR 74 crore reversal on account of write offs. This translates into provision coverage ratio of 81.5% on Stage three assets and 64.5% on Stage II assets supported by management overlay of INR 19.5 crore. This quarter, we have not released any amount from the management overlay.

15:30 Last quarter, we have released INR 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 INR 62.4 crore, up 67% sequentially. Return on assets on PBT improved approximately 3% annualized, while return on equity stood at approximately 10% annualized, reflecting gradual normalization of business performance and improving earnings quality. Overall, with the strengthened leadership team, robust capital backing and new book that is performing well and seven consecutive quarters of improving asset quality, we begin FY 'twenty seven with confidence and discipline. As we enter FY 2027, 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.

16:29 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 and 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.

17:15 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 just take your question, two per participant. Should you have a follow-up question, please rejoin the queue. Ladies and gentlemen, please wait for a moment while the questions queue is handled. The first question is from the line of Preetan from CLSA.

18:03 Congrats on the strong numbers. I before my questions, I just have a couple of clarifications because I don't I didn't hear some things correctly. So firstly, sir, you mentioned you've reduced management overlay provision by INR 10 crores. That was last quarter, right? Or again, have we done it in 1Q? Yes. Sir, can you ask all your questions together, then we will answer. Is management yes. Yes, yes. 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 somewhere, 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?

18:56 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's doing it, or do you have a separate collections team for this purpose? Right. 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 INR 62 crore profit, there's no management overlay release. Now coming to the last quarter, last quarter, we released INR 10 crore of management overlay in the P and L. So that's the actual position.

19:50 Yes. 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 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. Understood. Understood. And on the same 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 INR 10,000 crore this year, and we are saying we will grow at about 20%, 25% CAGR.

20:46 So for INR 12,000 crore of AUM between MFI and MSME, technically, we do not require more than thirteen fifty, 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 fifteen days to set up. Understood. Understood. Okay. Yes. And I'll come back this for the other questions if you can come back in the queue. Okay. Sure. I'll come back. Thanks. You. The next question is from the line of Rajiv Mehta from Securities.

21:32 Please proceed with your question. Yes. Hi. Good evening. Congratulations on very good numbers. So my first question is on the AUM growth target of INR 10,000 crore. So now again, in the context of the approval rate, so when you look at an 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 in that sense, see, a lot of heavy lifting of growth will have to be done by MFI in this year because NSME will scale up slowly and individual loans you will be launching later. So to do the heavy lifting of growth in the current year through MFI with current level of approval rates, how would that be possible? Would you do more sourcing? Or would you think that the approval rates will itself move up from where they are?

22:23 Right. Any other question, Rajiv, or this is? Yeah. And you also spoke about, you know, you know, more, you know, differentiated products, additional products to select identified MFI customer, and you said that few of them you already launched and then some will be launching in the next fortnight. So can you also slightly elaborate on it? Yes. Absolutely. So I'll take your first question, which is, let's say, for INR 10,000 crore of AUM, the disbursement that we require, about 44% to 45% happens of the disbursement happens in H1 and about 55% happens in H2, let's say, if we divide it like this.

23:10 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 of Fusion plus two, 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% to 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 we've been it's the collections efficiencies have been exceptional and we have looked at how the Fusion Plus two 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.

24:16 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 two 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 fifteen 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.

25:09 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 fifteen, twenty days, there are like partially what you asked that the new products or the differentiation that you're 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 question in that. So we have told you that there are about two fifty branches where we have credit and these are all large branches.

26:06 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 INR100 crores in a month. So we are fairly on track on the AOP on both Q1 and the forty days that have gone in Q2 so far. Okay.

26:55 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 one, two, three as well in terms of lesser flows in between those Absolutely, Rajiv. So and the confidence is coming from there. So all the confidence that I'm 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.

27:44 Okay. Thank you. Yeah. 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 return the queue. Thank you. The next question is from the line of from Unified 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 referring to slide number 22. Credit cost is about 40 crores. It says credit cost on other financial assets. So I'm not...

28:32 Could you please elaborate on what what does that other financial assets mean? That is... Mean... And I just had a question on the bad debt recovery. So in FY twenty six, we had about 54 crores for the entire year, and in q one, 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. Sir, on an industry at an industry level, every player is moving towards targeting the very high quality borrowers because all the other MOPIs are moving into that less than two MFI, three MFI borrowing.

29:20 So how are we able to reach out to new customers? Are they... Are you trying to reach out to a large... Larger set of customers, or how do we expect the growth to happen from there from there does the growth come from? That was mentioned. 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, etcetera, 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.

30:18 Yes. 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 customer or every branch is not a viable opportunity. So right now, we have 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.

31:08 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 INR600 crores if we take a rough settlement of about even 30 percent, that's about INR180 crores to be done. If you, let's say, take fifteen to eighteen months, we are talking about INR10 crores every month. So right now, we are still averaging about INR7 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 write back from there.

32:07 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 are 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.

32:57 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. On the where do we see the other growth coming from is that within 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 two fifty branches right now, that is giving us very healthy signals that we will continue to scale up. And we will you will see that eventually, we will have two businesses. One is MSME, which is shopkeepers and retailers in Tier three and Tier four markets.

33:57 These are nonrural businesses, semi urban, Tier three, Tier four. The other is the MFI, where while we 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. And not right now, but towards end of the year or next earlier, we will also look at a secured offering for these customers. But like I'm 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.

34:46 And I think we the growth number that we are talking about, what we are seeing a 20%, 25% CAGR 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% CAGR growth, it is on the cards. Thank you. Thank you. I repeat, to ask a question, please press star and one now. The next question is from the line of from PL Capital. Please proceed with your question.

35:38 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?

36:23 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 the the size of the MSME business? And how do we see that over the next three to four years in comparison to the MSI business? What will be the total sort of number in terms of size of both the businesses in, say, FY twenty nine, FY thirty? Okay. So Krishan will take the first one on liquidity, excess liquidity and So the on the liquidity front, we have you're right, we have kept slightly higher liquidity during quarter one.

37:11 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 INR $18.80 crores to about INR 1,400 crores. Our plan is to In July, our total borrowing was less than INR 50 crores. Less than INR 50 crores. So it automatically comes down to around INR 1,400 crores. INR 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 INR 14 crores, $14.50 crores. So this issue is already addressed, and that was in response to the West Asia crisis.

37:58 The MSME business that you asked, so we currently at about INR 800 crore of book and we're roughly doing about INR 50 crores a month. So ticket size is about INR 7.5 lakh to 8 lakh. 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.

38:52 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'll be leveraging the MFI real estate for acquiring MSME business. Now these branches are in MSME catchments, we will not be going to rural markets. It will be semi urban, Tier three, Tier four 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.

39:45 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 clear but the clarity is whatever we do, the clarity is there is 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%.

40:35 Got it. Thank you, sir, and all the best. Thank you. The next question is from the line of Akilesh from North Star. 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 CGM And whether they how do you think about that? Do they form a part of your business plan going ahead? You will take that, Dheeraj. So on the DTA front, we are unrecognized DTA amount is around INR $2.90 crore.

41:25 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 next two years' tax outflow. So we expect PVD to be equal to PAT for about next twenty four, twenty six months. Yes. So the credit guarantee scheme, I'm assuming you're referring to the credit guarantee scheme for the borrower and not the credit guarantee scheme that has been introduced for the banks? Correct, sir. Yes. Right. So on the credit guarantee scheme for borrowers, we had not registered so far.

42:16 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? Yes, it will be less than 5% because this is this will be more on the fresh disbursements. Right. Okay. Thank you. Thank you.

43:04 The next question is from the line of Vishal, an individual investor. Please proceed with your question. Hello? Congratulations, sir. For your results, sir, I have only one question. The Monster is cutting, and everyone is talking about aluminum. And I think our customers are basically on fiber. So based on that, your guidance for INR 10,000 crore AUM is still intact? Vishal, any other question? Then we will answer. No, I have only question. Sure, Vishal. Yes, thank you. So Vishal, I think like we've been talking about this, I completely agree. It is not that microfinance sector is completely insulated from either El Nino or Monsoon or any of these issues.

43:57 But we strongly believe that every segment has a prime, subprime and a midprime. I think the subprime, let's say, 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 the what has happened in the deleveraging cycle in the last one year is that the sub 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.

44:55 There have been states which are reinfed 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 are held very strong. Now so we are very confident that as long as the customer assessment is done right, which is what which is either through PQMs or through the guardrails that we have developed, the growth targets that we have taken of INR 10,000 crores, that is not a challenge at all. So we are we continue to be absolutely confident on the same. Okay. Thank you, sir. And sir, GNPA also be improved or still for the year?

45:47 I think we have I'll not talk on specifically GNPA, but on the you are already seeing that 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 zero point even if you take 0.15%, close to about 1.610.7% credit cost. And we have also given guidance that, let's say, if there is some challenge in the market, five bps to 30 bps or 40 bps that quarter will get impacted. And that's how we've given our guidance of overall 2.5. But I think from a credit cost perspective, as of now, the way first four months or four point five months have been, we see it closer to 2% rather than 3%.

46:35 Okay. Thank you, sir, and all the best for the full year. Thank you. The next question is from the line of Shaleen Kapadia from IIFL 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 we expect it to settle over the year? Yes. Do you want to take that? NIM. Yes. So, do you think settling So, by year there is a slightly more scope in the NIM. It's definitely about 15, 20 bps 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 to 20 bps, and which takes care of any glitches in the cost of funds, etcetera.

47:33 Will This not see is assuming that there is no rate drop. 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 if there is a rate drop, then we can go further. Okay. Got it. Thank you. And I think what will start kicking in right now, since names are on the book and the we have increased the customer yields by approximately 55 basis points. Now that the impact of that on the book right now is only 12 bps because you understand that disbursement moving into book will take time. So by the year end, let's say, that 55 bps is fully baked into the book, that itself will be 55.

48:22 So 55 minuteus 12 is, let's say, five-thirty. 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 bps of increase is more of a conservative number from here? Yes. That's a bigger minimum and the range is about, as Sanjay has mentioned, about 30. Yes. I think 15 can be 15 can go up to 25. It. Thank you. Thank you. The next question is from the line of from GCLI.

49:10 Please proceed with your question. Yeah. Hi, sir. Thank you. Sir, can you please help me quantify the onetime impact on the finance cost? So let's say, we are carrying about INR500 crores of extra liquidity on the balance sheet. So the quarterly impact of that would be, let's say, closer to INR10 odd crores. Plus, Krishnan also talked about some kind of mark to market of about INR4 crores being included in the finance cost. So is it fair to assume that this INR 14 crores impact that we see in this finance cost in this quarter, this is not going to recur in the second quarter? And the only impact will be for the growth that you will deliver from here on? Yes. So MTM impact will not be there. So MTM is how much we have? MTM is about INR 3.93 crores. Let's say INR 4 crores, Shijan, you will not see in the second And quarter now the excess liquidity, what is the net impact, So net of the net impact, net of what we have earned on the investments etcetera, that impact is about INR 3.5 crores, 4 crores.

50:09 So if we normalize that and don't keep the excess liquidity, that should also not be there. Okay. So INR 8 crore is the delta that you see over the Broadly INR 8 crore is number. Sir, second question is on the ECL coverages. How do you see that panning out over the next, let's say, two, three quarters, given that you are seeing significant improvement in your selections? 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 two and Stage three, as we have mentioned on that credit cost slide, the MFI Stage two and Stage three contribution has come down. And you know MSME, the LGDs, etcetera, 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.

51:20 The change on the face of it is just because of the composition change. Okay. And sir, 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? So I think they were in our last discussion only, Fusion, 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.

52:11 Okay. Sure. Thank you, sir. Yes. Thanks, Shiju. Thank you. The next question is from the line of Shripal Doshi from Equirious. 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 MSMEs, do we have any plans to also launch individual loan as a product? Because as industry players are transitioning 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 portfolio? Okay.

52:57 Just Shepal, 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'll 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.

53:47 We already have about two fifty branches where we have a PQM who's 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 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.

54:36 And we are coming out with a very we have come out with a very robust individual loan product, which we have launched today. 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 two 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 secured operating outside through those to those customers.

55:25 But we will not do anything without credit. So anything that is being done outside JLG, we'll 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 yes, obviously, we will go slow and we will test the market before going all out. Got it. And then like initially, what is the pricing that we're looking at for this for individual loan as well as like you you do about micro mortgages as well while that is everything that you highlighted. Sir, the pricing will roughly be the same, but it it could be... We are... It could be about, let's say, a 100 bps lower, but roughly the same. So you can assume same 200 bps lower.

56:18 Got it. Got it. Got it, sir. So the second question was on the capital raise. So I'm sorry, I I joined the call a little late. So when what is the time line on capital raise? As the growth on the loan book side is now back, what is the broader time line that we are looking at in terms of capital capital raise? Allocation? So while we speak, even after having additional liquidity, our leverage is 2.32x and capital adequacy 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. However, we should be on the road at least six to seven months before.

57:08 So middle of next financial year, we should be on the road and discussing the capital raise with the investors. So now till one point five years, which is middle of FY 2728, we are fine and post that we will be coming on the road to have a discussion on the capital raise. Sir, just a follow-up here. What is the Tier one ratio that we are keeping in mind as a trigger? Sir, Shivan, I suggest you come back in the queue, please. My request is please... Sure. Yes, sure. Yes. Thank you. Thank you for answering my question. Thank you. Ladies and gentlemen, in interest of time, that was the last question.

57:59 Of Sorry, now, if that was the last question, then let Shepal continue with that. We will just let Shepal finish that then. Let Shepal finish that. Left the queue, sir. Okay. Yeah. Yeah. So, anyways, I think question was what is the level of Tier one? So the first thing is in our 36% capital adequacy, it is broadly Tier one only. And on the lower side, what level we can go, I think regulatory is 15%. However, our internal risk management practices have a greater level of indicators, wherein I mean, we wish to maintain about bare minimum about 23% to 25%. And then there are graded indicators, we need to work on the capital raise.

58:56 Yes. I think that's it. That's what we understood from the question and that was the response and that is 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 YES Securities. Please proceed with your question. So the question is on how do you see the absolute OpEx moving given that what you plan to do with your rationalization of branches, adding few branches and rolling out introducing new products on the individual loan side and rolling out MSME and existing MFI branches. Putting everything together, how do you see your absolute OpEx moving in the current year?

59:44 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 INR $8.30 crores. And this year, we are the first quarter is about INR $20.04 crores, $20.05 crores. 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.

1:00:34 We take at least 2% to 3% reduction in the OpEx that we have shared with you. The product new product launch or let's say, because we're 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 needs about what, 200,300 people and similarly about 100 people in MSME. Doesn't 300,400 or 500 people also will hardly have any impact on the overall OpEx.

1:01:25 So and 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% to seven percent OpEx, both the businesses put together. Okay. OpEx to average a year? Yes. Absolutely. Got it. Thank you. Best of luck. 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.

1:02:10 Sanjay Gariyari 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, twelve to eighteen 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'll be taking, but 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.

1:03:11 Thank you. On behalf of Fusion Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.