GuruFocus - Release Date: November 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fusion Finance Ltd (NSE:FUSION) maintains a strong balance sheet with a capital adequacy of 24.4% as of September 2024.
- The company has robust liquidity, with approximately INR 1,700 crore available as of Q2 FY25.
- Fusion Finance Ltd has implemented a customer loyalty program that has shown early positive signs of improving customer attendance.
- The company has tightened its credit criteria, reducing new customer onboarding to ensure a quality portfolio.
- Fusion Finance Ltd is actively working on a rights issue of up to INR 550 crore to strengthen its financial position.
- The company reported a significant increase in credit costs for Q2 FY25, amounting to INR 693 crore, higher than the previously estimated INR 500-550 crore.
- There are covenant breaches that require waivers, and the company is in discussions with lenders and rating agencies to address these issues.
- Fusion Finance Ltd has experienced elevated levels of stress in asset quality, particularly in certain states like Jharkhand, Orissa, and Rajasthan.
- The company's gross NPA stands at 9.41%, and net NPA at 2.41%, indicating asset quality challenges.
- There is a noted decline in disbursements, dropping to INR 1,661 crore from INR 2,987 crore in Q1, reflecting tightened credit criteria and market conditions.
A: (Devesh Sach, MD and CEO) We have not found any specific deficiencies but are continuously evolving our processes. The sector's challenges have impacted customer credit profiles due to over-leverage. Our auditor noted covenant breaches requiring waivers, but we are confident in obtaining these waivers, supported by a planned rights issue of INR 550 crore with promoter backing. Our top lenders include HSBC, Axis Bank (NS:AXBK), Yes Bank (NS:YESB), ICICI, and IDFC First Bank (NASDAQ:FRBA).
Q: Can you provide insights into the reduction of customers with four or more lenders and the risk associated with the current 9.7% of customers?
A: (Devesh Sach, MD and CEO) The reduction is due to customers closing loans or being written off. We are seeing a positive trend with industry-wide adherence to guardrails. Regarding the 9.7% of customers, we are cautious but optimistic as we tighten credit criteria and focus on customer engagement to mitigate risks.
Q: How is Fusion Finance addressing the issue of unauthorized agencies influencing customers, and what is the impact on collections?
A: (Devesh Sach, MD and CEO) We are actively working with state authorities to address unauthorized agencies. While these influences have caused disruptions, we are focusing on customer engagement and persuasion to improve collections. Our collection efficiency remains stable, and we are seeing gradual improvements.
Q: What is the outlook for credit costs and provisioning in the second half of the year?
A: (Devesh Sach, MD and CEO) We believe we have reached a peak in provisioning and expect improvements in performance. However, the situation remains dynamic, and we are cautious. We are seeing early positive signs in our portfolio, and collection efficiencies are holding up, giving us confidence for the future.
Q: How is Fusion Finance managing its liquidity and lender relationships amid current challenges?
A: (Gore Gav Maheshwari, CFO) We are maintaining a strong liquidity position with INR 1,700-1,800 crore in cash. We are actively engaging with lenders for covenant waivers and are confident in their support, bolstered by our planned rights issue. Our collection efficiency allows us to service debt and operating expenses even at 90% collection levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.