ICRA stated that the rating action factors in the continued deterioration in Fusion Finance Limited's (Fusion) asset quality and earnings profile.

The company's gross stage 3 assets increased to 12.6% as of December 2024 from 9.4% as of September 2024 (2.9% as of March 2024) amid industry-wide stress in the asset quality.

Consequently, the earnings profile was adversely impacted and Fusion continued to report losses for the third consecutive quarter.

It reported a net loss of Rs. 719 crore in Q3 FY2025, a sharp increase from the losses of Rs 305 crore and Rs 36 crore in Q2 FY2025 and Q1 FY2025, respectively, resulting in an aggregate loss of Rs 1,060 crore in 9M FY2025 vis-'-vis a net profit of Rs. 505 crore in FY2024.

The deterioration in the asset quality was due to various industry wide factors including, but not limited to, adverse climatic conditions, attrition at the field level, worsening of credit discipline and overleveraging of borrowers.

ICRA has taken note of the corrective measures being taken by the company. Nonetheless, its ability to arrest further slippages and achieve recoveries from delinquent customers remains monitorable.

Further, given the deterioration in the asset quality and profitability, Fusion was in continued breach of various financial covenants as on 31 December 2024, making these borrowings repayable on demand.

As a result, the statutory auditor highlighted material uncertainty regarding the company's ability to continue as a going concern, though it has obtained an extension of less than 12 months from lenders for borrowings aggregating Rs 4,145 crore as on 31 December 2024.

While the liquidity profile is adequate at present, it could face pressure on the company's inability to obtain the requisite waivers.

The rating continues to factor in Fusion's established track record of operations with a presence in 22 states/Union Territories (UTs) as of December 2024.

Itis in the process of raising equity capital via a rights issue of up to Rs 800 crore (of which Rs 400 crore is expected in March 2025), which shall help it maintain a prudent capitalisation profile while providing for the deterioration in the asset quality and the consequent losses.

Fusion Finance is amongst India's leading non-banking financial company-microfinance institutions (NBFC-MFIs). As on 31 December 2024, Fusion had a presence in 496 districts across 22 states/UTs through 1,506 MFI + MSME branches.

It had reported a net loss of Rs 1,060 crore in 9M FY2025 on gross AUM of Rs 10,599 crore as on 31 December 2024 vis-'-vis a net profit of Rs 505 crore in FY2024 on gross AUM of Rs 11,476 crore as on 31 March 2024.

The scrip had risen 0.86% to end at Rs 164.20 on the BSE on Friday.

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