Whalesbook
📉 The Financial Deep Dive
The Numbers: Fusion Finance Limited has reported a significant turnaround in its financial performance for Q3 FY26, posting a Profit After Tax (PAT) of ₹14.05 crore. This marks a substantial recovery from a net loss of ₹22.14 crore in Q2 FY26 and a loss of ₹719.32 crore in Q3 FY25. Total income stood at ₹424.10 crore for Q3 FY26, a year-on-year decrease of 12.11%. However, Net Interest Income (NII) showed resilience, growing 5.89% YoY to ₹236.51 crore.
The Quality: Operational efficiency saw marked improvement. Loan disbursements surged 23% quarter-on-quarter to ₹1,594 crore, the highest in five quarters. Net Interest Margin (NIM) expanded by 27 basis points QoQ to 11.32%, driven by better portfolio trends and reduced cost of funds. Asset quality improved, with Gross Non-Performing Assets (NPA) declining to 4.38% (QoQ) and Net NPA at 0.63%. Pre-Provision Operating Profit (PPOP) rose 44.47% YoY to ₹93.57 crore, supported by a reduction in credit costs from ₹111 crore to ₹79 crore QoQ. Despite these gains, Assets Under Management (AUM) decreased 35.13% YoY to ₹6,875.84 crore, and the active borrower base saw a 36.07% YoY reduction. The company maintained a robust Capital Adequacy Ratio (CRAR) of 38.80%, bolstered by a recent Rights Issue, and liquidity remained strong at ₹1,783.27 crore. Annualised Return on Assets (ROA) turned positive at 0.76%, and Return on Equity (ROE) was 2.64% in Q3 FY26. A one-time impact of ₹6.91 crore related to the new labor code was recognized.
The Grill: The most significant concern highlighted is the breach of financial covenants on borrowings totalling ₹1,026.22 crore as of December 31, 2025. While the company has secured extensions from lenders for ₹1,001.84 crore, this remains a critical point of scrutiny for investors and analysts. Furthermore, the mention of modified conclusions and qualified opinions from predecessor auditors regarding Expected Credit Loss (ECL) evaluations in prior periods raises questions about past financial reporting integrity. Management, through MD & CEO Mr. Sanjay Garyali, emphasized steady, disciplined execution, focus on core fundamentals, portfolio quality, and calibrated growth.
🚩 Risks & Outlook
Specific Risks: The primary risk is the impact of the covenant breach; any future difficulties in meeting these terms could severely affect the company's financial flexibility and access to capital. The substantial YoY decline in AUM and borrower base indicates ongoing challenges in scaling operations or market consolidation, which needs careful monitoring. Past auditor modifications, though concerning, are somewhat mitigated by the removal of the 'Going Concern' caveat in the latest review report, signalling improved financial stability.
The Forward View: Investors will be watching for sustained profitability in the coming quarters, a reversal of the AUM and borrower base decline, and continued improvement in asset quality metrics. The successful management of lender relationships concerning covenants will be paramount. The strategic focus on core fundamentals and calibrated growth, as stated by management, will be key to navigating these challenges. The appointment of Mr. Brahmanand Hegde as an independent director is a positive step towards strengthening governance.