Ladies and gentlemen, good day and welcome to Q4 FY 2024 earnings conference call of Fusion Microfinance Limited, hosted by JM Financial. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.
Thank you, operator . Good morning, everyone, and welcome to the 4Q FY 2024 and FY 2024 earnings conference call of Fusion Microfinance. First of all, we would like to thank the management of Fusion Microfinance for giving us the opportunity to host the call. From the management, today we have Mr. Devesh Sachdev, MD and CEO; Mr. Gaurav Maheshwari, Chief Financial Officer; Mr. Tarun Mehndiratta, COO of the MFI business; and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer of the company. As usual, we will have opening remarks from the management team, post which we will open the floor for Q&A. With that, I would now like to hand over the call to Mr. Devesh Sachdev for his opening comments. Thank you, and over to you, sir.
Thank you, Sameer, and JM Financial for hosting us. Good morning, everyone, and thank you for joining Fusion's Q4 financial year 2024 results earnings call. As mentioned by Sameer, I am here along with my colleagues Tarun, our MFI COO; Gaurav, CFO; Deepak Madaan, Chief Compliance Officer and IR. I would like to take you through the key highlights of our performance in financial year 2024, in which we delivered strongly on all key parameters in spite of challenges we faced in Punjab. Request you to keep the presentation handy. If you refer to slide number five, we had a very strong close to the financial year 2023-2024, with disbursements of INR 2,953 crore in quarter 4, an overall disbursement of INR 10,294 crore translating to an AUM growth of 23.45% over financial year 2023. This is in line with our guidance of AUM growth in mid-20s for financial year 2024.
We delivered our highest-ever PAT of INR 505.29 crore, a growth of 30.52% over financial year 2023. In line with our customer acquisition-led growth strategy, we added 5.15 lakh new customers through the year, a growth of around 14% over financial year 2023. If you remember, this is above our guidance of 10%-12% on new customer addition. Our active borrower count as of March 2024 rose to 38.6 million, one of the highest in the sector. Our NIM expanded by 107 basis points to 11.22% in spite of a tight liquidity environment, as we were able to keep our cost of borrowing in check through focused liability management. This was also aided by our rating upgrade to A+ in October 2023. Our healthy income growth led to cost-to-income ratio moderating by 184 basis points to 36.60%.
We delivered healthy ROA and ROE of 4.78% and 19.55% respectively, in spite of slightly elevated credit cost. Now, I would like to talk about three, four items before we dive into the performance of Q4 and further slides. First, on Punjab. In FY 2024, our portfolio in Punjab was impacted for the reasons already covered little in the previous calls. The share of Punjab in our overall AUM has come down to just 2.8%. The on-ground situation in Punjab has stabilized with collection efficiency of 35% in Q4 FY 2024. We now hold sufficient provisions for Punjab portfolio and don't expect any further hits, subject to collection efficiency holding up. As highlighted in previous call, we had stopped disbursements since December 2023. In terms of our efforts on ground, we have increased customer touchpoints with entire hierarchy mandated to meet customers in both impacted and non-impacted areas.
We added to field collection force and telecalling backup. We are keeping a close eye on the situation on the ground and will take a call on fresh business post-election. Details on Punjab are covered in slide nine of our next presentation. The second point I will talk about is the credit cost. Our net credit cost for FY 2024 of 3.49% is in line with our guidance given in Q3 FY 2024. As mentioned, we do not expect any further hits from Punjab in FY 2025, subject to collection efficiency holding up. In FY 2025, we do not expect our net credit cost to exceed 3%. We are quite confident of delivering ROAs in a guiding range of 4.25%-4.5% and ROE of 18%-20%. Now, a few points on the regulatory landscape.
Since the implementation of the liberalized pricing guidelines, we have been very thoughtful and measured in our pricing discussions. Also, from the time of our IPO, we have been highlighting that we are very cognizant of the cost to customer. Currently, we are one of the lowest cost lenders to our borrowers. We have a very well-established risk-based pricing framework, in line with RBI guidelines of March 2022, and are very transparent in terms of our pricing disclosures. Now, I would like to go to slide number six, which covers some executive summary on our Q4 performance. Our disbursement grew 24.45% year-on-year to INR 2,953 crore. Our AUM grew 7.32% quarter-on-quarter to INR 11,478 crore. We added close to one lakh customers this quarter.
Our yields remained steady, adjusted for one day less in Q4 in February, with a drop in our average cost of fund and NIM expanded quarter-on-quarter by five basis points to 11.59%, which was in line with our guidance. Our marginal cost of funds continue to trend lower, with Q4 marginal costs at 10.24%, which is a drop of over 20 basis points over Q3. This gives us a visibility for further expansion NIM in the near term. Our PAT for the quarter came in at INR 132.69 crore, which is Q-on-Q growth of 4.93%. We are now present across 453 districts, which is one of the highest in the industry. Moving to slide number nine on collection efficiency. Our Q4 collection efficiency ex- Punjab remains steady at around 98.3.
If you go to the slide number 20, we opened 211 branches in FY 2024 across our MFI and MSME verticals to take our total branch count to 1,297, which is a growth of approximately 19% over FY 2023. 73% of the new MFI branches added are outside our top five states. We will maintain similar growth rate of branches the coming year, with approximately 66% of branches planned to be opened outside of our top five states. This, in our view, will aid in our diversification journey over the coming years. This year also marked our entry into A.P . and Telangana, which along with our presence in Karnataka and Tamil Nadu, which is already among our top five states, will help us expand our presence in South India. Coming to slide number 22, which captures our key productivity metrics.
Our GLP per branch has been following a consistent trajectory and stands at INR 9.1 crore per branch as of FY 2024, versus INR 8.84 crore as of FY 2023. Clients per branch of 3,404 remains one of the best in the sector. GLP per RO is again hovering around INR 1.3 crore to INR 1.4 crore. We have also calibrated our average customers handled by our field officer by around 15%, looking at the dynamics in the field. Slide number 23 captures our ATS, average ticket size and average outstanding per borrower. Our Q4 2024 average ticket size has increased by 6% over Q4 FY 2023. In line with our guided strategy, we intend to maintain a healthy mix of growth between customer addition and average ticket size increase over the next year. We expect a 10%-12% growth both in ATS and customer base in 2025.
Our average outstanding per customer has grown by 11% year-on-year to INR 28,500, which still remains lowest among our comparable peers. Customers unique to Fusion are 31%, not much change from the last numbers which we shared in September 2023. Moving on to slide number 24 on branch vintage. We have a very good mix of seasoned and new branches, which provides a good visibility for future growth. If you see in the slide, 41% of branches are less than three years old, which contributes just 26% to our AUM. This will improve as these branches scale up. Moving on to slide number 37 and 38 on key ratios. Our cost to income is steady on quarter-on-quarter basis, 36.8%. Our Q4 OpEx has slightly moved up. It is because of the network expansion done in last two, three quarters, along with calibration of customers per RO, investment in technology.
Out of this, 53 basis points of the OpEx is contributed by MSME business, which is currently in a scale-up stage. With planned investment in line with our growth targets across both MFI and MSME, we will see some impact on the OpEx. However, over a period of time, we are certain that the same will stabilize. Cost to income ratio is a more consistent metric to track our operational efficiency. We expect it to range between 36% and 38%. Now, in two successive years, we have delivered ROA in the range of 4.5%-5% and ROE is of 19%-22%. Coming to our MSME business in slide number 39. As of March 2024, our MSME vertical entered with an AUM of INR 531 crore across 97 branches. Average outstanding per client is approximately INR 4 lakh. It continues to scale up as planned. Huge focus on secured loans.
We will give a more detailed update on this business in the investor meet, which is scheduled on May 17, 2024. We continue to maintain a healthy balance sheet with a capital adequacy of 27.53%, ECL coverage of 3.44% on our loan book, diversified liability mix with more than 50 lenders, and per equity and sanctions in hand. This gives us a strong foundation for future growth. On the back of a good growth in FY 2024, despite some challenges in Punjab, we remain confident of growing in the mid-20s in FY 2025 with healthy return ratio. I would like to reiterate that we remain steadfast in our efforts in building our business with a view on the long term to create sustainable shareholder value. Thank you very much. Over to Gaurav.
Thank you, Devesh. Good morning, everyone. I would like to speak out some of the key highlights in Q4 FY 2024. The core interest income of the company grew by 6.67% on quarter-on-quarter basis, and 27.80% on year-on-year basis. The total income has also increased to 10.09% on quarter-on-quarter basis and 29.66% on year-on-year basis. As mentioned by Devesh, our marginal cost of fund has further reduced by 20 basis points on quarter-on-quarter basis and 44 basis points on year-on-year basis, aided by our focused approach on optimizing the cost of fund. We will continue to work on optimizing our cost of fund in the going future also. As a diversification strategy, we will tap ECBs and debt capital market in this year. NIM has increased by 5 basis points to 11.59% from Q3 FY 2024 of 11.54%, and increased by 102 basis points on year-on-year basis. It is as per our guidance.
We will continue to expect some more uptick in NIM in coming quarters before it gets stabilized. We will try to utilize this NIM expansion for creating overlays, keeping in mind consistent ROA and ROE. As on March 31, the pre-provision operating profit is INR 290.68 crore, increased by 31.46% on year-on-year basis and 11.69% on quarter-on-quarter basis. Cost-to-income ratio remains steady at 36.84% in comparison to quarter four of FY 2024 of 36.80%. The operating cost increased by 27 basis points on quarter-on-quarter basis. We have added a couple of employees in the last quarter, which is addition of branches. Apart from that, there are certain other additions which we have given as a rationalization of our client per ROE metrics, change in incentive structures, IT spend, and implementation of some welfare measures at various levels. Operating cost of MFI business is 5.59%. The MSME business contributes 0.53% for Q4.
Coming to slide 10 on Punjab impact, as it can be seen, with the uptick in PAR 60, the slippage in Punjab portfolio in Q4 are within our expected range, which we have provided already in Q3, and rest of the PIN has already been provided in Q4. The collection remains at 75%. The delinquencies, early buckets in Punjab has come down, and we expect minimum slippage from here on, subject to the collection efficiency. We are holding 25% of the provision of the INR 317 crore of book of Punjab as on March 31, 2024. In Q4, we have increased our management overlay by INR 18 crore to INR 59.5 crore for future unforeseen events. Our efforts are to keep increasing the same, as mentioned earlier. Please refer to slide number 12. Company has provided impairment of INR 117.80 crore in Q4, which includes INR 18 crore of management overlay.
The credit cost for the quarter is 0.93%. This is inclusive of 8 to 10 basis points impact of Punjab in Q4. The net rate cost for FY 2024, excluding management overlay, stands at 3.49%, which is within our guidance. We have done a write-off of INR 75.11 crore in Q4, which is 0.73% on the closing portfolio. We have derecognized the interest amounting to INR 15.22 crore. The ECL as on March 31 stands at INR 354.54 crore, which includes INR 59.50 crore as management overlay. Majorly it is sitting in stage 3. The overall coverage for stage 3 assets stands at 119%. Historically, our write-off recovery is about 5%-7%. In this financial year, we have received INR 26.81 crore against the write-off. We are anticipating similar recovery patterns in the coming quarters. In this quarter, we have done direct assignment to the tune of INR 509 crore.
Sanction in hand as of March 31, 2024, is INR 2,736 crore. Thank you.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants, I request you to use handsets while asking the question. Ladies and gentlemen, we will wait for the moment while the question queue assembles. First question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Hi. Good morning. Thanks for taking my question. A few questions. You alluded to that incrementally you don't expect higher slippages in Punjab subject to collections holding up. So in that context, you have disclosed total Punjab portfolio of INR 317 crore. If you can quantify in terms of the troubled districts where the problem lies, what would be the size of the AUM out of this INR 317 crore? And if you can give that overall, Punjab is at 75. In these troubled districts, what would be the collection efficiency?
Yeah. In Punjab, totally 35 branches are impacted, and they span in about 16 districts for us.
Okay
This is largely started from the area around Amritsar, Gurdaspur, spread on to the lower districts. But what we've seen potentially has been that this has end up over the last three, four months. We've not seen this impact spreading over to more branches of our coverage. We have total 55 branches in the state, so it remains confined in this particular span of districts and branches.
Sure. Out of this INR 317 crore, if you can quantify how much AUM or ballpark, whether it is half of the AUM which is in these troubled districts or what would be the total size? I'm just asking this because the collection of 75 may not be consistent across. There may be some branches where your collections are normal.
Out of total 55, like I mentioned to you, 35 branches are impacted. Close to 20 are non-impacted branches, right?
Okay.
Yeah. On the AUM front, out of INR 317 crore, the breakup is largely around 65/35 kind of a breakup because bulk of the branches have been under this particular impact.
Got it. That's helpful. Secondly, sir, total PAR 60 plus that you've disclosed as on March is 35.7%. I just wanted to understand how things have moved in April. Is it similar, stable, improved?
Similar.
How is it?
Right now, that's the same. Otherwise, if you remember when the last call, because we saw some trends in the month of January, that's why we changed our stance on Punjab in the last call. But now when we speak overall, this collection efficiency is holding up. So we have not seen any further deterioration in collection efficiency.
Got it. S ir, with respect to total net slippage, is that the calculated number of around INR 80 crore which is total your gross slippage minus the recoveries and upgrades, that was INR 80 crore. So out of that, roughly, what was the contribution from Punjab, roughly during the quarter? Or you can give gross slippages from Punjab out of total slippages.
The gross slippages to Punjab is between INR 18 crore-INR 20 crore in Q4.
Okay.
Rest is as business as usual from the rest of India.
Sure. Got it. That's helpful. S ir, the guidance that you've given of 3% credit cost for next year, does that include-
Less than 3%.
Less than 3%.
Yeah.
That includes the overlay that you will be creating incrementally also.
This is we are talking about net.
Net.
Gaurav, has mentioned in our commentary, that because there is a NIM uptick which is still there we are looking in coming quarters. We are going to utilize that NIM uptick or maybe OpEx rationalization in the later half or the second part of the H1, sorry, in H2 of the coming year. We will utilize to create buffers in coming quarters.
Understood. This includes buffer, the 3% that you are guiding.
No. This is basically net we are talking about.
Sorry. You are saying total credit cost.
Credit cost we are talking about.
Okay. Total. All right.
Buffers will be over and above this.
Okay. Got it.
Net credit cost, we are saying that we would like to maintain, we would like that it should come down to, it should not exceed 3%. However, we will in H2 results, we will give a, if you see how the trends are panning out, we will further talk about it. But right now, looking at things, we are very confident that the credit cost will come down in the next quarters.
Sure. S ir, any incremental state or where the stress has elevated or is it just one state that is troubling for now?
No. There is no other.
Anything else to follow?
... state we are facing any issues.
Okay.
Most of the states are business as usual.
Sure. Last question, if I can squeeze in. This is with regards to the cost of fund. If I look at the slide, the cost of fund both on stock and marginal, is broadly now, the gap is hardly 6 basis points. Just wanted to understand, with the rating upgrade that we got a couple of quarters back, whether the funding cost will start coming down now because it's fixed, most of your book is fixed or there is a reset period. When do you start expecting the incremental cost of fund to trend lower from here?
You will start looking at this coming in the first quarter onwards, because whatever repricing which we need to do, we have already done that. The incremental sanctions as mentioned that in a year last which we have, where we have two rating upgrades, our marginal cost has decreased by 44 basis points. Now it will show some impact in Q1, Q2 going forward.
Understood. Okay, great. Thanks a lot, sir. All the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure management is able to address questions from all the participants on the conference, please limit a question to two questions per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Please go ahead.
Yeah. Hi, good morning, sir, and thank you for the opportunity. Congratulations on a good set of numbers. Just a clarification from one of the previous comments. You mentioned net credit costs would be less than 3% for FY 2025, which is obviously lesser than what we reported this year. I sort of missed some part of that commentary. Did you mention that overlays will be over and above this guidance, or will it get included in this guidance? That's the first clarification.
Overlays will be over and above. We are talking about net credit cost.
Okay, sure. The next question is, if I look at some of the metrics that you keep reporting on a quarter-on-quarter basis. If I look at number of customers for branch, customers for RO, the disbursement ticket size on a Q-on-Q basis, all of these have sort of gone down. Is it just because some of the branch openings were backended, or is this something which we are consciously doing on a structural basis and it's going to continue going forward? How should one think about this?
Look, we have added 55 branches in this quarter, Q4. Otherwise, there's no only structural change, Pranav, which we are doing, is that number of customers handled by the field officer, is where we have done that around rationalization of around 15% there. Looking at the field dynamics, we have done extensive study in the field and looking at all those dynamics. Other than that, everything is because we added people. If you see today even the number of customers per branch, we are one of the best. We are hovering around 3,200. This will be around that range only. If you look at the outstanding per branches, again, has moved up. I don't think there will be any structural change in any of this metric. This is all business as usual.
Because even in the Q1, you will see because we are front-loading lot of branches in the first two quarter. But there is no structural change. If you look at our contribution of branches as per the vintage, more than three years, which we provide. You see all those 60% of branches contribute to 74% of portfolio. All those metrics remain same. Otherwise, we do not see any other change. Even the number AUM handled by far RO, I think this more or less similar. There's no structural change there.
Right. No, sir. Thank you. Just one last question, on your cost and branch expansion. You mentioned that the branch expansion pace would remain similar in this year going ahead as well, and a cost income guidance of 36%-38%. Is it fair to assume that most of the branches that we open would probably be in newer states like A.P., Telangana, or do we still see some headroom for expansion in top five states? I know you mentioned that 60%-70% of incremental branches will come from newer geographies, but just trying to understand on A.P. and Telangana specifically.
Top five states, branch openings will be only 17%. Last year, if you see, out of 181 branches, 32 branches came in top five state, which is around 18%. This year, around 50, which is again 17% of our total branch network. Around the southern states will contribute around 31% to our branch network. Others will be around 34%. That's how it is. We are going to split around 60 branches, which is around 20%-25% of branches will get split, where the portfolio has moved up. These definitely are in some of the top states like, we will in Bihar, in Uttar Pradesh. But overall, I think you probably have seen that our top five states are still hovering around 70.4, as we remain committed on diversification.
If you see, we have the highest overall spread as per district is concerned and not a single district where our portfolio, the highest portfolio district is around 1.52. We remain committed on diversification, and you will see that this is panning out in this financial year also.
Sure, sir. Thank you so much, and good luck for the future quarters.
Thank you.
Thank you. The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah, hi. Good morning. Congrats on stable performance. Many of my questions are answered. Just two questions. Firstly, the PAR 30 is...
Rajiv, we can't hear you. Hello? Hello?
The line got disconnected. We will take the next. The next question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Just two questions. One on the collection efficiency, which stood out for us at 98.3%. But I am assuming this is including arrears, right, sir?
Yes.
What is the ex-arrear collection for this quarter and Q3?
Yeah. This ex-arrears for comparable numbers is around 95%.
For Q4?
Yes, for Q4.
What it was in Q3? I think it was 95.5, if I remember correctly.
No, I think it was around, 95.2 is what you mentioned, around the same number. Around 95.2. Yeah.
Got it. Tarun, just one follow-up on that. Let's say, when we look at the collection efficiency, it is still lagging the industry trend. Is there any specific pockets which are causing this stress, or is this the industry level phenomenon and maybe the same is reflecting other numbers, maybe going ahead. How one should look at this data point?
I think, Renish, relevant observation. I think what we should do is, as is rest of comparison with A, with our numbers quarter-on-quarter, and like Gaurav mentioned earlier. We have obviously about 17% growth of Punjab portfolio, and as I mentioned that 65% of the branches are in impacted areas. Yes, that definitely. I think overall, other than Punjab, I think we have been able to stabilize and improve in some of the states, like we mentioned last time. Comparing it with sectors, I think, A, there is no public information which is available, but secondary information typically tells us it is the same range. Right? 95% is largely around what we see, what we gather from our information in the field. That is what it is.
Got it. Tarun, again, on that only, so let's say when we look at our portfolio concentration, top five states at 70%, which has been applied since quite a long time. Is it right to assume that maybe outside top five states, the collection efficiency will be lower, and hence, we would not want to go to those areas until and until we
No. I think, A, top five states are only because of a concentration standpoint. I think it's more to do with the total demographics of the state, including the eligible population and the target segment. I think there are states outside of top five which perform very well, and we are very positive on those states, and we will continue to grow there as well.
Okay. Thank you, Tarun. There is just one last question on the strategy front. We have seen that people are moving from a monthly to a weekly model as they reach scale. What is your thought on that? Do we continue to operate on a monthly model, let's say even at this scale, or maybe in next three years will be probably double of the benefits size? On that scale, monthly is a good model. What is your thought on that, sir?
Yeah. So Renish, I have two observations. One, we will show the data from credit bureau on 17th. I think the difference in credit cost over whether it is a fortnightly, weekly, or a monthly is not much difference. Data will show. I hope that data will put to rest a lot of things which are talked about the frequency of this thing. However, the second point, in the newer states we have entered, we are doing fortnightly. So now today, 20% of our branches are fortnightly. We are taking a hybrid call because there are geographies like Andhra Pradesh, Telangana, where the microfinance activity was closed for over 12, 13 years. So we said that because we are starting new, we are doing a fortnightly there.
Got it.
I can still tell you that when we look at the portfolio breakup between these two, there is not much difference.
Got it.
We will follow a hybrid model. There are states like, we have opened some few branches in Maharashtra this year, eight branches, but newly opened in Maharashtra. Looking at the geography, we said we will do fortnightly. So we will follow a hybrid model between fortnightly and monthly.
Got it. Okay. That is it from my side, sir. Thank you.
Thank you. The next question is from the line of Bhavik Dave from Nippon Mutual Fund. Please go ahead.
Hi, good morning. We have just two questions. One is broadly in the sector, sir. Just wanted to get your view in the sense that is this turning out to be a 95%-96% collection efficiency kind of a model, which used to be 99% pre-COVID, and a 3% kind of credit cost model, considering there will be different states having different events at any given point in time. Maybe, and the rules of the game have changed considering the two, three lender rules that have changed, and now it is more household income, people transitioning to individual models. Do you think that is leading to some bit of over-leveraging of customers? Is that visible out there on the ground in your view? Considering rural has been quite weak when we look at other macro data points.
Rural has been struggling, and maybe that is one of the reasons that post-COVID things have just maybe deteriorated for the economy from the rural segment. Do you think this is a 3% kind of sustainable credit cost model in your view? And how would your collection efficiencies be different North versus South? Because we are a little more Central and North-focused player. Does that also play a role in terms of the collection efficiency? Because I think what we end up doing is comparing you with a few South-based players, wherein the collection efficiency will be very different or the economy will be very differently positioned versus how North and Central is. Can you just throw some light on this?
Yeah. Hi, Bhavik. It was good point. Let me first talk about the last point which you asked. Look, if you look at today, our core states, Bihar and U.P., we are of a collection efficiency, even the daily collection efficiency, today's demand collected today is hovering at a very good rate.
There, our overall collection efficiencies are hovering anywhere between 99%. We are not seeing anything in these core states. We are diversified. There are certain northern states which have lagged, like we mentioned, because of the floods. Some part of Rajasthan, Punjab, we already highlighted, Haryana. Those are still coming up, even Haryana is in two. I think you are right. There has a diversification as a pan-India player, and mostly from North India. You could say that the economies are different, but still we would like that we should be in best-in-class as far as our business processes are concerned, as well as collection efficiencies. T he second point is what we are seeing in the overall field is that, and which you rightly mentioned, that there are two, three things are happening.
One, definitely, there is a pressure on center's attendance because this all got disrupted during the COVID. We are running a very huge campaign now in our branches to make sure the customers, we are building incentives for customers to come to the central meeting. Other thing is, yes, earlier same-day collections were very different. Now they are slightly different. That's how when the sector matures, sector changes. These are dynamics. Customer may not pay today, but customer will pay in next two to three days. That is also happening. That's why if you see overall collection efficiencies around more than 98%. But yeah, there is a 3% or 4% lag here and there between collected within the month.
If you see, Bhavik, that is one of the reasons we have rationalized the number of customers handled by our field officer, which was hovering around 555 customers. We have now, we're trying to hover between 455 - 475 customers per field officer. Second thing is that we are now completely revamping our collection vertical, putting up a complete collection vertical as you see in any mature asset class. That is also one change. I would say that this is more of an evolution. Customers still remain committed. There is a demand for credits. People are cognizant of their record in the credit bureau. One or two, some. But yes, you're right. The credit costs will not be what it was pre-COVID. You're right.
I'll still say that, we would like that the credit cost to be hovering anywhere between 2.5 - 2.75. That's why we're saying we should, because from where we are, we ended at 24. We in 25 would definitely like to improve there, and that's why we said it should be less than three. One more thing, Bhavik, is very important, is that if you see this whole liberalized pricing guideline has also come because of these factors. We all have to appreciate even the regulator has looked at all the data that there are such situations, which lead to higher credit cost. Now, you see, if you look at in our case, in spite of slight elevated credit cost, we have been able to deliver consistent ROA of more than 4.5, and ROE of 18% - 20%.
I think what we have to see is that there are elbow rooms, there is a risk-based pricing. There are states where we have already put the states into high, medium, and low. There are states where you can have a differential pricing to cover your credit costs. But I think the important metrics here to see is that even if you say 2.5- 2.75 kind of credit cost, still, we are in a position to give a robust metrics on all fronts.
Correct. Just to follow up, one question on this is that, when you look at this year's performance, right, like we looked at 4.8- 4.9% ROA, you are guiding for a 4.6% - 4.8%, with an improvement in credit cost. What am I missing? Why is it either flat to what we reported in FY 2024, considering our credit costs are coming down by 50 or more basis points in this year? So what will be the factor that will not let us be on the higher end of that 4.6%- 4.8% or around 4.9%- 5% ROA, considering we have a significant improvement in our credit cost this year versus what we reported in FY 2024? And margins are on the up move or are stable at where we are.
Operating expenses like you mentioned, 36% - 38%, which is broadly where we are today. So what am I missing there? Why do we not touch a 5% ROA, for FY 2025, at least, considering credit cost improving in FY 2025? Just wanted to understand what is the missing point.
Yeah. No. Bhavik, you see, since when we came for IPO, we have been saying our long-term ROA will hover between 4.25% - 4.5%, which takes into account any blips here and there. So what we are again emphasizing is our ROA, ROE guidance are for long-term.
Got it.
So that is what I am saying. These are not for this financial year, these are for long-term.
Perfect. Okay, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah. Hi. Good morning, and thanks for taking my question. I have a couple of them. To begin with, Devesh, in your opening remarks, you did mention that the company has created adequate provisions towards the Punjab portfolio. Could you just quantify what is the quantum of provision that we are carrying against Punjab portfolio?
Umang, as mentioned, that we are carrying 45% of the provision on our INR 317 crore of book. So effectively, we have a provision of INR 80 crore, near about.
This INR 80 crore would be sitting probably across stage 2 and stage 3.
One, largely is, as I mentioned in my opening remarks, that the opening buckets are being stabilizing, being collection efficiency is getting stabilized at 75%. So whatever pain needs to be coming in stage 2 and stage 3, it's already being taken care at the upfronting, which we have seen in Q3 and Q4 now.
Okay. The second question was, it would be really helpful if you could just give us some guiding thought process in terms of the whole management overlay provisions. I will just give some context here. While we appreciate that currently we have about INR 60 crore of management overlay provision that we have. But what is the guiding vector which the management keeps in mind when you guys either create or utilize the overlay provision? Let's say today we have close to 3% of the portfolio where the collection efficiencies are dropping by the quarter. L et's say in the third quarter, we utilized INR 20 crore of management overlay provision, to some extent towards the Punjab portfolio. In this quarter, we have created about INR 18 crore of management overlay provision.
Now, if let's say the PAR 60 book has already crossed 30%, why not aggressively run down this portfolio and probably if at all there are recoveries in the future, as a matter of prudence, take the hit today and why not account the recoveries later on? Or is it just a deferment of credit cost as we see because the management overlay is sitting there, but at some point we have to utilize the management overlay, right? I just want to understand the broader thought process out here.
First, one part I will answer, the second part, Gaurav will answer. The first part, Umang, is that you asked fundamental question, what is the thought process between creation of the management overlay and usage of the credit overlay. Am I right?
Yeah.
So look, the basic thought process is that any quarter where we will see that we have the profitability is better and we are giving metrics which are near to what our guidance is on ROAs, we will create buffers. That is the basic thought process and because we believe that this sector goes through some blitz here and there, so it is always better to have an extra cushion. Y ou all could see that we used INR 20 crore and these will be used for, Umang, exceptional situations like Punjab was an exceptional situation. This will not be used for any day-to-day or this thing. So that is our thought process and that's what we have fundamentally are able to even prove that we used INR 20 crore and we recouped INR 18 crore out of it. So that is the basic thought process on our thing.
The second is if you see the overall our provision coverage from last quarter to this quarter has already moved from 107% to 119%. Let me also say this, that there is a overall commitment to increase this coverage ratio and you will see in the next 2-4, 4-5 quarters and this reaching, including the management overlay, you will see an increasing trend on the provision coverage ratio. So this is on the fundamental aspect. The second, Gaurav.
So like Devesh had mentioned, we are going to utilize this management overlay in an an exceptional scenario. I f you see that Fusion has a presence in 22 states, 453 districts. So what is going to happen, because this event can happen in coming quarters or not in maybe next four quarters or the next year.
If any district also gives me a near about 1%, 1.5% of low, then obviously I am able to utilize that particular situation. This is all towards an impression that we want to create an insulation sort of position for our P&L going forward. At this point of time, the number looks quite small, but going forward, as Devesh has mentioned, the intention of the management is to create and increase this management overlay over a period of time so that there can be an insulation which we are not able to see right now, but going forward, it can come, it can't come. That's the way process. Good point.
Gaurav, I truly appreciate that, but where I was coming from is that when we reported our Q3 numbers that December PAR 60, Punjab was 12%, 13%. When we had our call in January, it was about 20%. Today it is 36%. I don't really know where it is standing now in April or May, right? I'm saying that probably Punjab is that exceptional situation, right? Where probably with every passing quarter, it appears that the utilization of the management overlay will only become more and more critical. Then why not bite the bullet and utilize it simply because although this portfolio is smaller, but it's dampening the overall collection efficiency numbers anyways, right? T he hit has already gone through the P&L. So, why call it out as a management overlay and not take it as a credit cost is what I was trying to understand.
No. In last quarter, what we did is that proactively we have moved from stage 1 to stage 3. In this quarter, there is a movement of INR 20 crore. So we have already covered INR 100 crore. If you calculate out of INR 317 crore, 35% is INR 113 crore. We have already covered in stage 3 as approximately INR 100 crore. Apart from that, there is a management overlay, which we have already created over and above that. So I think that is what we have said in opening commentary, that Punjab-related pain is being taken care of as being collection efficiency at 75%, and Devesh has also mentioned that in April, the collection efficiency is remaining at that level, which we have quoted for March.
Okay.
Incrementally, we don't see that anything which we need to provide further for Punjab. We have sufficiently taken care of whatever the pain because if you see that in my earlier statement, one of the questions or in the commentary, that the new slippages to 0 to 30 has been reduced in Punjab because of stabilization of collection. So there is no incremental pain which needs to be taken in provisioning.
Understood.
Umang, if you see even our write-off policy in the middle of the line in the last year, we have already accelerated from what we were writing off after 365 days, we are now writing off 270 days.
Sure. Got that. This last question is on operating efficiency now. Again, Devesh, you did mention that you guys have been calibrating, let's say borrowers per branch or the relationship officer, the number of borrowers that he manages. Is it fair to assume that incrementally, let's say, the growth that we are targeting for will require equal amount of physical distribution expansion or, at some point, we should start seeing AUM per branch or AUM per officer sort of metrics kind of starting to improve, which have been kind of stagnating for about three, four quarters now?
So one, we said that, look, customers per branch, Umang, we are one of the best. If you compare this with this thing, there's a difference of anywhere between 500 to 1,000 customers per branch. We are at 3,200. We can share the data with you if you look at the comparable overall peers around us. We're already doing well there. The second is because of our risk metrics, we split the branch after the branch reaches a certain scale. This is more from us managing our risk. Third, only metric which we are saying is changing is the number of customers handled by a field officer. However, you see that overall there will be around 10%-12% increase in the ticket size, in the average outstanding of the customer, and that we should take care of.
You will see that maybe in Q4, because the first two quarters, you will be aware we'll be opening these new branches and those metrics may not be visible. But then you will start seeing that change happening and you will see that overall metrics moving up in Q4.
Okay. All right. Thank you so much for patiently answering my questions.
Umang, one more, as far as I think, important metrics for you to really focus on is the cost to income. If you see, we are between 36%-38%. Another aspect is that because our MSME is scaling up, this is also contributing to the overall OpEx. But if you look at standalone OpEx at MFI level, we are very competitive.
Sure. Perfect. Thank you so much, and wish you all the best. Thank you.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit your questions to one question per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Nidhesh from Investec. Please go ahead.
Hi there. Thanks for the opportunity. Good morning. First, can you share PAR 30 data for microfinance except Punjab and on Punjab, and PAR 30 on MSME book?
We provide PAR 60 data, Nidhesh, which we can provide.
Sure. PAR 60 also will be useful.
Yeah. It is 3.10%.
3.10% for which book? I want to think it is ex of Punjab, but Punjab and MSME book, all three.
This is inclusive of Punjab. Ex Punjab, we will share you later.
This is inclusion of job. It is overall book here.
MSME book also, if you can share, for Q4.
Yes. We'll share the data separately.
Sure. S econdly,
Nidhesh, talk about it in more detail when we meet for earnings on 17th.
Sure. Secondly, if you can also share the reason why we are changing our name or proposing to change our name from Fusion Microfinance to Fusion Finance Limited.
Yeah. As we are diversifying
our overall book by MSME, what we could see is that this was creating a confusion because if you open a branch, an MSME branch, it says microfinance. That is one. Even we are looking at more products going forward. We thought that it is better that we show that commitment by changing our name and we put a similar explanation to the regulator, and they have approved this thing, and we have got this name approved from ROCE. However, microfinance will remain our core, and we are completely committed on that. Around that, whatever elbow we have available of 25%, we would like to utilize that to do more product as we are already now building MSME. That is the thought process.
Okay. Thank you, sir. That is it from my side.
Thank you.
Thank you. The last question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Yeah. Thank you for taking my question. So basically, with regards to the Punjab portfolio, right? First of all, you mentioned that the collection efficiency over there is 75%. Is this on a quarterly basis, or is this for the month of March 2024?
This is for a quarter.
Because in January, you mentioned that the collection efficiency in Punjab was around 78%-80%. For the full quarter, this is at 75%. Does it mean that the collection efficiency in March on an exit basis was lower than 75%?
No. It is that level only. If we have seen any change in the trend, we would have definitely called out. If we are not calling out, it is basically because of the fact that the collection efficiency has remained similar.
Can you help me with the monthly collection efficiencies in Punjab for January, February, and March?
Sorry?
The monthly collection efficiencies for January, February, and March in Punjab.
It is not right now we have, but it is more or less in a similar range.
Okay.
We felt that it came down to around 78% in January, when we last did the call. But after that, it is hovering on that level only, 75%. We will look at the April. Yeah.
Fair enough. The second question is basically on the ex of Punjab portfolio. We saw that quarter-on-quarter, the collection efficiency declined 10 basis points. What is driving that, or is it just a seasonal thing, which is there?
Yes. You are right, we mentioned that. This is about 10 basis points only, right? As you pointed out. L ike we said, Gaurav already mentioned that. There are no any special events or something like that. It is just about a few fraction basis points in a particular regional state, and this is largely in the same range. So 10 basis points of drop on such a large portfolio with across 4 million customers really, is something that we really bake in terms of saying that it is in the same range.
Fair enough. The last question is basically, two quarters back, you had called out some stress in the Gujarat and the Rajasthan states also on a relative basis. Of course, nothing on the scale of what it is in Punjab. But I see that in last two quarters, we have added branches in both of these states. So what is giving us that confidence?
Yeah. This is a question which was raised earlier also out of the top five states. We mentioned very clearly that there are promising states, and we continue to build our network there, have that conviction. We have added branches because we think that there is potential, and we continue to monitor our spending scene improvements in terms of both Gujarat and Rajasthan, be it in terms of levels of collection efficiency or customer restitution. We have not seen any reason why we think that we need to not expand there. We are expanding in a very calibrated manner. You would have seen that our expansion of branches in Gujarat and Rajasthan. I can tell you for the entire year, we would have added close to about Just give me one second. Yeah. About 17- odd branches, right?
It's not really too significant a number out of the total number that added. If I added 181, so it's about 10%, and kind of similarly in Rajasthan. We continue to maintain our network optimization there.
Fair enough. The last question is with regards to the lending rates. We have seen that a lot of the peers now coming and saying that they are going to take a rate cut. Where are we on that and what is our stance?
If you remember, because of this aspect only, I have covered this, that on the regulatory landscape, we have mentioned. In my commentary, I mentioned that since the implementation of liberalized pricing guidelines, we have been very calibrated. We have one of the lowest costs to our borrowers and we are absolutely well-established risk-based pricing framework in line with RBI guidelines, and our pricing disclosures are very, very transparent. There is no plan in the immediate future to reduce the rates.
Fair enough. That actually gives a lot of clarity. Thank you, Devesh, and all the best.
Thank you. That was the last question for the day. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Please go ahead, sir.
Thank you everyone for joining this call. We would like to thank the management of Fusion Microfinance for giving us this opportunity to host the call. Thank you.
Yeah. If you could allow me one minute. I think one important aspect here is that we have done growth. We have ticked all the boxes since our IPO. Our ROA and ROEs are still more than what we guided for, in spite of slight elevated cost. You can see that we have made the highest profit this quarter. I think I will again like to drive this point that please look at us from a long-term perspective. We are very focused on making a very wonderful franchise. Thank you.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.