Fusion Finance has reported a net loss of Rs 92.30 crore for the first quarter of FY26, significantly higher than MOFSL’s projected loss of Rs 43.40 crore. This performance reflects a challenging quarter, as the company’s Net Interest Income (NII) declined by 31% year-on-year to Rs 270 crore, aligning with MOFSL expectations. Operating expenses rose 13% to Rs 210 crore, elevating the cost-to-income ratio by approximately 120 basis points to 70.8% from the previous 69.6%.
MOFSL commented on Fusion Finance’s difficulties with its borrowing covenants. “Fusion Finance had breached covenants on borrowings of ~INR36b, resulting in these borrowings becoming payable on demand,” MOFSL disclosed. The NBFC managed to secure waivers for 72% of these borrowings and is negotiating with remaining lenders to avoid immediate repayment demands.
The NBFC’s management highlighted improvements in asset quality, citing strong performance of portfolios originating after August 2024, which showed enhanced collection processes. Collection efficiency for these portfolios reached 99.5% in Q1FY26, indicating effective revised underwriting standards. The overall efficiency also improved, with reduced forward-flow rates, and expectations of further gains in coming quarters.
In terms of disbursements, Fusion Finance experienced an 18% quarter-on-quarter decline to ~INR9.5b, while Assets Under Management (AUM) dropped by 37% year-on-year and 14% quarter-on-quarter to ~INR77b. The management stressed a move beyond crisis mode, aiming for stability and cautious growth in FY26.
MOFSL adjusted its forecasts for Fusion Finance, revealing: “We have lowered our FY26 EPS estimate and now project a net loss in FY26, compared to our earlier expectation of a marginal profit. We estimate an AUM CAGR of ~1% and a PPOP CAGR of ~-9% over FY25-27, along with RoA/RoE of ~3.7%/12% in FY27E.” The brokerage expressed optimism about a potential sector turnaround, noting improvements in collections and flow rates.
Despite these improvements, MOFSL stressed the importance of sustained performance in the next 1-2 quarters to confirm a recovery. “However, stable performance over the next 1-2 quarters will be crucial to validate this recovery as a definitive shift. With no other near-term catalysts, we reiterate our Neutral rating with a revised target price of Rs 170 (based on 1x Mar’27E P/BV).”
Fusion Finance recorded another subdued quarter in terms of AUM growth and disbursements, as it focused on portfolio quality and collection efficiency. “On a positive note, credit costs saw a sequential decline, supported by improved collection efficiency and lower delinquencies during the quarter. The company is taking slow and measured steps to regain stability and normalcy. FUSION, in our view, is likely to deliver an AUM CAGR of ~1% and PPOP CAGR of ~-9% over FY25-27. We estimate RoA/RoE of ~3.7%/12% in FY27. With no near-term catalyst, we reiterate our Neutral rating on the stock with a revised TP of INR170 (based on 1x Mar’27E P/BV),” MOFSL remarked.
The brokerage remains watchful of sector trends, speculating that a market trend reversal might be imminent, and continues to monitor asset quality developments closely. The recovery of Fusion Finance is seen as stabilising, needing sustained performance and strategic focus to transition fully into growth.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
