Ladies and gentlemen, good day and welcome to the Q2 FY 2024 Earnings Conference Call of Fusion Finance Limited, hosted by ICICI Securities. 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you.
Thank you, Michelle. Good morning, everyone, and welcome to Fusion Finance Q2 FY 2024 Earnings Call. On behalf of ICICI Securities, I would like to thank Fusion management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of Fusion, represented by Mr. Devesh Sachdev, Managing Director and CEO, Mr. Gaurav Maheshwari, CFO, Mr. Tarun Mehndiratta, COO, MFI Business, and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer. I will now hand over the call to Mr. Devesh Sachdev for opening remarks, and then we will open the floor for Q&A. Over to you, sir.
Thank you, Renish and ICICI Securities for hosting us. I want to take this opportunity to wish all of you seasons greetings and a very happy Diwali, and many thanks for joining our Q2 financial year 2024 results conference call. I am here along with my colleague Tarun, COO, Gaurav Maheshwari, CFO, and Deepak Madaan, Chief Compliance Officer. I would request you to please keep the presentation which we have uploaded handy. I would like to start with slide number five and six, executive summary. One very significant highlight for this quarter has been that we have crossed a milestone of INR 10,000 crore of AUM. Our year-on-year growth of AUM has been 24.6%, and correspondingly, our disbursements this quarter at INR 2,344 crore have helped register a year-on-year growth of 14.71%. Another key highlight of this quarter was rating upgrade from ICRA to A+ stable.
This is our second rating upgrade in less than 11 months. Last upgrade happened on 14th November 2022. Focus on our core building blocks continues. We have added 1.3 lakh new customers in Q2. Our total customer base now as of Q2 2024 is close to 3.7 million, with a new customer addition of [two gross], new customer addition of 2.4 lakh in H1. Having grown 17.69% year-on-year, it will be pertinent to say that this is in line with our stated 10%-12% increase in new customer acquisition year-on-year. We have added two new states, Andhra and Telangana this quarter, and have also opened up 61 new branches, taking our total network to 22 states and 1,164 branches. Another very significant highlight has been the reduction in our marginal cost of borrowing to 10.55% amidst a very high interest rate environment.
This is a very strong validation of our robust liability management. Significantly, while we have continued to focus on building capacity, we have also continued our focus on improving our cost of income, which for the first half of financial year 2024 stands at 36.34%, an improvement of 364 basis points year-on-year. NIM has expanded further to 11.12%, registering a 23 basis points increase over last quarter. This trajectory, as you will remember, is as per our earlier guidance on NIM. We have maintained healthy NIM while offering one of the lowest rates to our customer in the sector. Last but not the least, we have delivered a PAT of INR 125.69 crore for this quarter, sequentially up by 4.34% over Q1, and with a combined H1 2024 PAT of INR 246.15 crore, registering a year-on-year increase of 44.66%.
If you refer to our last investor call at the end of Q1 financial year 2024, you will remember that I had said that given the impact of unseasonal rains, which also unleashed their fury in Q2, especially in the geographies where we have a sizable presence, there would be temporary impact on both disbursements and collections. Starting with disbursements, total disbursements in Q2, as I mentioned earlier, is INR 2,344 crore. If I slice it further, we have seen a better correction in September and similar trend has continued in October, and our average disbursement in these two months has been INR 850 crore. This gives us confidence to grow in mid-20s as per what we have been stating always. We have also been seeing encouraging improvement in collection efficiency. Please refer to slide eight. Our collection efficiency as of Q2 stands at 97.6% versus 97.3%.
Out of our top five states, four of them, U.P., Bihar, Odisha, and Tamil Nadu have shown good improvement given that three of these states had really learned the effect of rains. Even M.P. is showing a good correction now and we are working with our customer and we are very hopeful that you will see an improvement even in M.P. Moving to slide nine, our GNPA as of Q2, financial year 2024 stands at 2.68%, and NNPA at 0.65%, registering a reduction of 52 basis points and 13 basis points respectively versus Q1 financial year 2024. We had also mentioned during the last quarter's call that trade costs may marginally inch up temporarily due to the impact of these unseasonal rains. I had also stated that it may take two, three quarters to normalize this impact.
Given the traction we are seeing, we are confident of having a credit cost of less than 3% in this financial year. I would also want to add here that during the last quarter, we have recovered INR 5.16 crore against our written off portfolio in Assam, as part of the Assam Microfinance Incentive and Relief Scheme launched by the state government to provide relief to all stakeholders of microfinance sector in Assam. I had mentioned we were the first company in the sector which came out with a strategy to create extra provision under the management overlay, and also mentioned that whenever in good quarters there is a room available, we will add to this provision. We have added another INR 3.6 crore to management overlay, taking the overall amount to INR 61.48 crore.
Focusing on our core area, we have stayed the course on building a network and optimizing our performance as we grow organically. Moving to slide number 18. As you know, diversification is one of our key strategy since inception, from operating in 12 states in 2017 to 22 states across 1,164 branches as of Q2. We continue to remain focused on our business composition across states, maintaining positive traction in all our large states. We are confident that we will be able to maintain a prudent composition of all our large states in our portfolio mix as we go along. Our top five states, Bihar, U.P., Odisha, M.P., and Tamil Nadu, have a concentration of close to 70% as of Q2, up very marginally from Q1 against 74% in financial year 2017.
As we have mentioned in the past, we are growing further in some of our existing states, along with newer states like Karnataka, Andhra, and Telangana. We are confident that over a period of time, the concentration in top five states will get further rationalized. Composition of rural portfolio stands at 93%. Slide number 18 also shows our network built across the last few years in all the states that we have been operational. We are targeting to open as I have mentioned, we have opened 61 new branches. In this quarter, we are targeting to open approximately 106 to 170 branches in financial year 2024. While on the point of branch network, I wish to take you to slide number 22.
With our continued focus on establishing branches across last few years, as you will see, we now have a very good mix of vintage and new branches, a very strong operating lever for future growth. As of Q2 financial year 2024, we have 599 branches out of 1,088 branches in microfinance that are more than three-year vintage, and they contribute 68% of our portfolio. Remaining 499 branches are less than three years currently and contribute 32% to our portfolio. Slide number 21 in the presentation highlights our longstanding approach, growth with prudence. As we have mentioned earlier, one of key focus area has been new customer acquisition. Our active customer base stands at close to 3.7 million, registering a 15.69% year-on-year growth versus Q2 of financial year 2023.
We have maintained a healthy mix of new and existing customers as reflected in our ATS, and outstanding per borrower is INR 26,200 versus INR 25,800 as of Q1 2024. A strong validation of our focus on borrower addition is customers unique to Fusion. If you remember, I had mentioned that every six months, we take this data from the credit bureau, and we have taken a recent data where it shows that our 31% is our unique customers to Fusion as of September 2023. Slide number 20 captures our key productivity metrics. Our GLP per branch has been following a consistent growth trajectory and now stands at INR 8.8 crore per branch as of Q2 financial year 2024, versus INR 9.1 crore as of Q1 2024. It is because of the new branches we opened.
As you will see that we have been constantly improving on our branch productivity metrics quarter-on-quarter and even year-on-year. Our average branch productivity at sector level for comparable large NBFCs is around INR 8 crore as of June 2023. GLP per RO has also been tracking consistently strong across the past years, and the same in Q2 financial year 2024 is INR 1.4 crore per field officer, a 17% growth year-on-year. Borrowers per branch for MFI business stands at 3,381 crore as of Q2 financial year 2024 versus 3,513 crore as of Q1 2024. It is because, as I mentioned earlier, we have opened new branches. I also would like to take you to slide number 36 on MSME.
We started this vertical in December 2019 with a clear vision of building credit underwriting capabilities, mapping adjacencies, tapping the potential of the missing middle, and serving MFI customers who are moving up the value chain. We are excited about how this is shaping up. It is 4% of our overall book. Out of the INR 400 odd MSME book, 50% is secured. We have been guiding that we would like to maintain a portfolio mix of 65%-70% secured and 25%-30% unsecured, balancing prudence and yield. We are confident of reaching this ratio mix in next three quarters. Would like to mention again that we will share our broad growth strategy on both the verticals in the next two quarters.
Having shared the highlights of our Q2 financial year 2024 performance with you, I would like to reiterate that our goal always is to maintain a long-term view on building our business, setting a strong and consistent growth platform and sustainability. Thank you very much.
Thanks, Devesh. Good morning, everyone. Would like to give some key highlights for the financials. Interest income has increased by 3.72% on quarter-on-quarter basis and 24.27% on year-on-year basis. Total income has increased to 3.34% on a quarter-on-quarter basis and 26.29% on a year-on-year basis. Our marginal cost of fund has reduced by 20 basis points on a quarter-on-quarter basis. We are focused on optimizing our cost of funds. As we all know that in last two years, our Central Bank of India has increased the repo rate by 250 basis points. We as a company are able to manage with 61 basis points increase in our marginal cost of fund. This is because of our strategy of borrowing on fixed and floating rates with a one-year MCLR, our strong relationship, negotiations, strong operational and financial performance, capitalization and rating upgrade.
We are keeping a close watch on the micro and macro development happening globally, and fine-tune our strategy from time to time to optimize the cost of fund. Liability mix would largely remain the same. Our upgraded rating of A+ by CRISIL would help us in exploring capital market and NCD exposure. In this quarter, we have received some large sanction from State Bank of India, HDFC Bank, Kotak Mahindra Bank, HSBC, SIDBI, ICICI Bank, Axis Bank, et cetera, with the better commercials. NIM has increased by 23 bps to 11.12% from Q1 FY 2024 and increased by 91 bps on a year-on-year basis. It is mainly from churning of lower yield portfolio to higher yield portfolio and controlled cost of fund. Cost to income ratio has marginally increased by 15 bps from 36.26% of Q1 FY 2024 to 36.41% in Q2 FY 2024.
We are confident for closing this financial year by less than or equal to 36%. The operating cost is stable on a quarter-on-quarter basis. The operating cost for MFI business is 5.20%, and MSME business is 0.40%. In this quarter, we have opened 61 branches pan India. Would request everyone to refer slide number 22, wherein our 599 branches are contributing 68% of the AUM. Going forward, our branch productivity will increase. Would like to mention again that we will keep on adding in our network, people, and continue to invest in our digital infrastructure. Operating costs would largely be stable. The pre-provision operating profit is INR 241.79 crores as on September 30, 2023, which has an increase of 29% year-on-year. It has increased by 2% from Q1 FY 2024. PPOP is having an impact of de-recognition of interest due to write-off.
The ECL of September is INR 300 crores 24 lakhs, which includes INR 61.48 crores in the management overlay. The overall coverage has been increased to 125% from 118% on quarter-on-quarter basis. Credit cost is 0.84% on a closing portfolio, and without management overlay, it is 0.79%. The company has provided impairment of INR 75.28 crores in Q2 FY 2024. We have done write-off of INR 103.42 crores in Q2, which is 1.03% of the closing AUM. Due to this write-off, we have de-recognized the interest amounting to INR 24.95 crores. As on September 30, the restructured portfolio is INR 2.95 crores, which is 0.03% on the closing AUM. This is already a part of stage three. Please refer to slide number nine. PAR 90 is 2.12% of the portfolio, out of which 0.32% is pertaining to pre-March 2021, which is part of stage three.
The remaining PAR 90 of 1.80% belongs to post March 2021. We are still considering the old and the new portfolio from April 2021 since the time of listing. Thank you, everyone.
Thank you very much, sir. Sir, should we open the floor for the Q&A session?
Yes, please.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask questions may please press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take the first question from the line of Rajiv Pathak from GeeCee Holdings. Please go ahead.
Yeah. Hello, good morning, Devesh, and hello, everyone. Congratulations sir, on a very good performance this quarter. A few questions from my side. First and foremost, sir, if you can just touch upon how do you see the competition intensity in our core states, U.P., Bihar, where we have seen a lot of players now focusing incrementally. We have actually controlled our ticket sizes. Can you just touch upon that and, on that basis, how do you see the growth in the microfinance panning out March 2024 exit and March 2025 exit? My second question would be on the asset quality and the margins. I will come to that once we get some insights on this one.
Yeah. Thank you, Rajiv. Rajiv, look, in our core states, I will give you one data because as per what we have taken from Credit Bureau. If I talk about U.P., our customers which are unique to Fusion are still 37%, 38%. And mind you, overall, pan-India, our unique has come down to around 31%. Similarly, in Bihar, all our top states, we are seeing that we are able to grow consistently and acquire new customers and also having customers which are unique to us. So we are well-entrenched in these geographies. Additionally, what we are doing is that, in the last two and a half years, we have split around 100 branches. The idea is that our policy is when the branch touches more than INR 15 crore of portfolio, we split that branch.
70%, 75% of those branches, the split has happened in top five states, especially Bihar and U.P. The idea is that, one, because it shows there is a potential to grow. Also from monitoring aspect and risk aspect, we split the branch. So from both aspects, it is beneficial. Coming to your, I think this point in all we are, yes, competition has entered in some of these states, but I think we are well-entrenched and we are still being very calibrated. We are looking at our numbers very closely. Our U.P., Bihar portfolio is very good. Portfolio quality is panning out very good. So we do not see any kind of challenge in some of these states.
Okay. And sir, any targets for the MSME area?
Yeah. Rajiv, as I mentioned to you, I have been saying this that we are fully invested in this vertical. We have more than now 800 people starting from CO, MSME, till the frontline staff. We have close to around 76 branches. We are opening another 30 branches this year. It will be 100 branches. It is already at 4% of our overall portfolio. It shows the kind of focus we are giving to this vertical. As I mentioned in my commentary, I think please wait for one or two quarters, maybe in Q1 of financial year, we will come out and give a broad growth strategy around both the verticals.
Sure, sir. Sir, on these spreads, I think we have not seen any companies this quarter report a quarter-on-quarter improvement in spreads. I think with the flattish cost of funds, which is quite a remarkable thing. If you can just guide us as to how is the incremental yield and the incremental cost of fund panning out, and how do you see the spreads going forward for the next three, four quarters?
Yeah. Rajiv, if you remember, even when we came for listing, we have been guiding The Street that our first target is to reach a NIM of 11.2%-11.5%. The whole trajectory has been like that only. We have also been telling The Street, the people that, "Look, we are very focused on our cost of fund." With the help of these two upgrades, and this is very significant to get two upgrades in 11 months, has really helped us to manage the cost of fund. I think you will see the NIM reaching the guided level in the next two quarters. Then we will take a call that how do we want to go forward from there.
As far as the cost of fund is concerned, I think Gaurav, in his commentary, has mentioned that some of the large sanctions we have got even in the last one or two months, the rates are better. But still, we have to keep in mind the overall macro environment. If suppose the regulator changes the rate, that could be out of our control. But we are doing everything possible to make sure that our cost of funds is going down every quarter.
Sure, sir. As a data point, if you can just share the incremental yield and the cost.
Yeah. As far as the incremental disbursement yield is concerned, it is near about 22.5. As far as the new sanctions or new cost of fund is concerned, as I have mentioned earlier, that we are getting better commercials in comparison to the last quarter which we have received.
Okay. That will be lesser than 10.6?
Yeah, obviously.
Okay. My third question is on the asset quality. I think you had already guided us that there will be some impact of the floods and everything on the collections. I think your gross slippages have gone up a bit quarter-on-quarter, but it doesn't seem very alarming. You can just help us with the numbers on the gross slippages? The second part is the write-offs that we have taken of INR 103 crores. How do you see this write-off? Do you think that till now, whatever needed to be adjusted on the book, whether it be because of the events or the interest rates impact, is taken on the book and now maybe going forward for the next couple of quarters, it will be like a more normalized run- rate on the slippages and the credit cost?
Rajiv, as we have mentioned in Q1, because of whatever the impacts we have seen of the unseasonal rains and floods. We have given a guidance that it will get stabilized post Q3, and that is what we are still saying on the same. That INR 100 crores write-off largely is a pre-April 2021 book where we have written off INR 34 crores from the pre-April book, INR 3.63 crores is from the restructured portfolio and INR 68, INR 69 crores is from your post-April book. If you see that overall the collection on the starting buckets are getting better. Whatever we are trying to do, we are trying to create more coverage on the stage three portfolio. Going forward, I think you will have a similar sort of write-off in Q3. After that, in Q4 and onward, we will see a normalized credit cost going forward.
Rajiv, we are very confident that we will keep the credit cost less than 3%, and that's the traction we are now looking at. As we have been mentioning that we are very consistent and calibrated. We always follow very prudent policy and that's what we are trying to do. Going forward, we would definitely like that the credit cost, we'll give some kind of understanding of credit cost in the following years. But in this financial year, it should come down to less than 3%.
Okay, sir. Thanks a lot and wish you all the best, sir.
Thank you.
Thank you. We will take the next question from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah, sir. Hi, good morning. Congrats on good numbers. Thank you for giving me the opportunity. Firstly, sir, a couple of data points. What was the interest de-recognition because of the write-off in the quarter? Can you also quote the collection efficiency for the month of September and October?
The de-recognition of interest from this write-off is INR 24.95 crore.
Rajiv, on your point on collection efficiency, I can only tell you that if we break between July or September, I think September was better. We have already mentioned the collection efficiency for the three months, it is 97.6%. Even October, the traction is better. So you will see that, in this quarter it will be inching up.
Got it. Gaurav, just a question on stage one c overage. So when I look at stage one ECL that is reduced in the quarter. So what is the thought process of reducing coverage on stage one?
No, it is as I mentioned that because the write-off pool is getting released from the pool, so the effort on the collection efficiency is getting better. If you see from that, I have already mentioned in the earlier statement that my opening buckets are doing better. So that is why there is a release of that provision.
Okay. No, because I was coming from the view that maybe the management overlay that we are carrying of INR 62 crore, a good part of management overlay must also be sitting in stage one provision, as stage one provisions, and the management overlay is actually increased. Would it be right that management overlay will be largely sitting in stage one?
No, if you see that my historical LGD is 65% for stage three, the coverage is at 76%, more than 76%. Some part of your management overlay is sitting in stage three, some part in stage two, and some in stage one.
Got it. Just one last, is your view on the NPAs. We have seen a good reduction of NPAs and the write-off policy has been accelerated, so the write-off will remain maybe slightly elevated because of up-fronting of policy. With the flows and with the collection efficiency getting better as you are alluding, should our NPA levels by March come down further significantly? Can we expect that?
Yeah, it will come down.
Sure. Perfect. Thank you so much.
Thank you, Rajiv.
Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah, hi. Good morning. Thanks for taking my question. Sir, just one question on collection efficiency. I was just trying to understand the numbers a bit better. Collection efficiency has been improving on a quarter-on-quarter basis. But if you could just help us, what is the collection efficiency ex of arrears?
Collection efficiency ex of arrears is around 95.5%. Our collection efficiency, Umang, is very clear. Whatever we are able to collect in the current collection, which is around 95.5%, and with including arrears, it is 97.6%.
Right. Devesh, sir, what I am trying to understand is, in the presentation, we can see that in pre-March AUM, if I am reading the numbers correctly, the collection efficiency is 0.3. Obviously, that is a very residual negligible portfolio. Post-March, we are showing as 99.7, but the blended collection efficiency comes in at about 97.6. I was just trying to understand, is there some denominator effect in the blended collection efficiency number that we are looking at?
Which slide are you referring to?
Slide number eight.
Yes, that is the composition of the portfolio.
That is basically a composition of the portfolio.
The portfolio pre-March is 0.3, and the rest is 99.7, which is.
Yeah. Okay.
Post April 2021. That's the composition.
The composition. I'm sorry.
That's the collection efficiency of the.
Okay. Understood. All right, fair point. Sir, ex of arrears, our collection efficiency at 95% still looks a little lower. I understand that there was a bit of a seasonality factor this quarter, but ideally, on a steady state basis, how should we look at the collection efficiency? Should it improve and maybe move more closer to about 97%, 98%, or it remains pretty much in this band?
Look, Umang, you are right. But one fundamental thing which has happened after the COVID is that there are clients which are still, some little disruption in the center meeting still remains. You have to go to the customer's house to collect.
Also, if I can give you a broad understanding on the, even if we look at our 90 plus, which is 2.12%, 40% is coming from three, four states. We are working on some of these states. The point, and those three, four states have overall 12% to 15% of our overall book. We are calibrating our strategy in some of these states. I can tell you the states like top five states, the collection efficiency is hovering in the same range which you are talking about, around 96%, 97%. I think once we can recalibrate some of our strategy in these states, which are giving us some pain, and other states, some of the newer states will start coming up. You are right, you will see in the next financial year, we start reaching those kind of numbers.
Understood. All right, perfect. That was my question. Thank you so much, and wish you good luck.
Thank you.
Thank you. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Yeah. Good morning. Thank you, sir, for taking the question. I had actually two questions. First is, did I hear right that the write-offs will be elevated over the next couple of quarters? If you can guide us to what extent it could be.
Viral, as we have already mentioned, it is not about that continuously lot of quarters needs to be taken, but being we have changed our write-off policy in the last board meeting post our Q1. There would be another leg of write-off which is coming in the next quarter. Beyond that, you will see a regular course of a normalized credit cost, but it will not be as significant as we did in this and in the next quarter.
Okay. But still, despite that, you will be able to deliver a sub 3% credit cost for the full- year?
Yeah. Yes, that's what we are saying.
Okay. This will be without any reduction materially in terms of your PCR?
Yeah. We are going to continue, and if option is being given, we are going to increase that coverage.
Okay. Fair enough, sir. The second question was on the states that you were mentioning that are contributing disproportionately to the NPA. Can you give us the names of those states?
Yeah. These are Punjab, Haryana, Gujarat and Rajasthan. Out of this, I think we are confident that the current numbers, especially in October, shows that Rajasthan and some parts of Gujarat are stabilizing. Haryana, Punjab still continue to give us some pain. We are recalibrating our strategy. I think what we have done in Punjab is split some of the branches. It may look like that we have increased our branches in Punjab, but that's not the case. We have split the branches. We have put more people. We have reduced the overall, and we are focusing more on renewal of the current customers. We have a full policy, the strategy in place, when we handle some of these states. Those are the states which are giving us some pain. But we are very confident.
We will be able to recalibrate our strategy in these states, and with all other states doing very well, I think you will see an improvement.
Thank you, sir, for preempting the next question about the addition of branches in Punjab. The last question, if I may, would be on the sector level in terms of the yields. We have seen these news flows around basically some concerns that the yield for at least the existing customers should gradually come down and the benefit of lower cost of funds by MFIs need to be passed on. What would be your view on this and where are we seeing in terms of, say, if at all there is any regulatory action?
Yeah. I'll first try to answer, Viral, on the regulatory action. Look, in my understanding, and I have been associated with as part of advocacy, as part of MFIN, RBI took 11, 12 years to move from a rule-based regulation to principle-based regulation. The overall lifting of the curve on the rates is not only applicable for only NBFC-MFI. It is for all the banks and SFBs and NBFCs. Today, they're talking about registered entities. I don't think that RBI will suddenly change the stance and come back and put some kind of caps. This is my personal view. However, they would be engaging with individual companies wherever they feel that the yield or the rates to the customer, all the optimization of the cost of operation is not being passed on to the customers.
I have been saying this the first time also when we went to the street for our IPO, that after the lifting of the curb, we have not boiled the ocean. We have kept three stakeholders in mind, our shareholders, our customers, and the regulator. We are one of the lowest in terms of our cost of lending rate to our borrower. I will again reiterate, which I mentioned in the last quarter, is that once the pivot starts happening on interest rate and we see that the rates are coming down, our operating expense also, we are very focused on reduction of our cost of operations and the benefits which will accrue. We will optimize our shareholder value and our customer and keeping the overall sense of the regulator in mind.
That is the principle we have followed, and that is what we are going to do in future also.
Got it, sir. I think this is very clear. Thank you so much.
Thank you.
All the best.
Thank you. A reminder to all the participants, anyone who wishes to ask questions, may please press star and one. We'll take the next question from the line of Sumit Rathi from Centrum PMS. Please go ahead.
Thank you for taking the question, sir. Congratulations.
I am sorry to interrupt, Mr. Rathi. Your voice is breaking, sir.
Is it? I will just keep.
Also, please be.
Am I audible now?
Yes.
Yeah. Am I audible now?
Yes, sir. Sir, increase the volume a little bit.
Yeah.
I mean, speak a little bit louder. Thank you.
Yeah. Is it better?
Yes, please.
Yes.
It's fine now.
Yeah. Sorry for this. Sir, just wanted to ask one question that if we see the competition, even companies bigger than ours in terms of AUM size are growing better than us, and even companies which are smaller, they are also catching up with respect to growth and they are also catching up with this number of INR 10,000 crore with the AUM, which we achieved this quarter. Sir, just wanted to understand what is our strategy on growth and what is our right to win over that. Are we facing competitive challenge or are we being extra cautious to have good qualities of customers like that? Some color on that would be very helpful.
Look, I think you have to judge companies with how over a period of time they have done. We have a 13-year history. Look at our growth rate even during the COVID. I think that is my one question. Good times, everything looks fine. However, we are not trying to race with someone. We have our own pace. We have our understanding of the business. We look at our risk, our processes. I'm not saying that we are cautious or anything. I think we are calibrated. Wherever we are seeing an opportunity, we grow. As I mentioned to you, in the September, October, our run- rates are very healthy and our growth will be mid-twenties. Yes, you are right. Even though now there are no caps on number of borrowers, ticket size or for that matter, exposure norms. The only exposure norms is for calculation.
We have still kept all the caps internally as a prudent company. We will focus on building a portfolio, which is a good portfolio and maintaining our NIMs and the yield. I think that is our more focus rather than just only growth. We want to have a very balanced approach.
All right, sir. That is helpful. Thank you, sir.
Thank you.
And all the best. Yeah.
Thank you. The next question is from the line of Bhuvnesh Garg from Investec Capital. Please go ahead.
Yeah. Hello, everyone. Congratulations for good set of numbers. A couple of questions from my side. Firstly, on customers' profile. If you can share some data on average five of the customers, and how it has changed this six months versus in March 2023, and also how many percentage of customers have more than three lenders as on September.
Yes. I have this data. I can tell you some broad things. If you remember the March call, what we said was our unique customers to Fusion was hovering around 33%, 34%. It has come down to 31%. There is 3% drop as competition intensity has gone up. Customers, their relationship is, other than Fusion, they have one more relationship is still hovering around 29%, 30%, with two is around 20%, with other than Fusion, three is around 12%. If you see four and above is still hovering between 5% to 6%, 7%. There is not much change. Also, in terms of our unique customer, this time what we have done is that we have taken a unique customer state-wise.
What we are seeing is that there are states where, as we have entered some new states, which is now Karnataka, Tamil Nadu, the unique customers in these states are hovering anywhere between 13%-15% to Fusion. However, our top five, like I can give you Chhattisgarh, it is still 42%. MP, currently which are unique is still 38%. Even for that matter, Rajasthan is 33%. Himachal is around 41%. Haryana is around 27%. Uttar Pradesh, as I mentioned, around 37%-38%. Uttarakhand, again 36%. Odisha is around 32%-33%. That gives us a huge comfort that in our top states where we are present, because these are states where there is still lot of scope to grow, the unique percentage are still very healthy. But yes, once you enter, and now in Andhra and Telangana, you will have a very high percentage of unique customers.
Retail overlap still remains. What is the retail overlap on this thing? It is around 24% on our book. But that has moved because we have entered some of the mature markets like Andhra, Telangana or Karnataka or Tamil Nadu, where you know that these customers also take other products. But overall composition has not changed much. I hope I have answered your question.
Yeah. Got it, sir. Understood. Just a clarification on retail overlap. What does it mean exactly?
What I mean is that customers which are at a household level, they have other loans other than microfinance loan. They may have two-wheeler loan, gold loan, any other personal loan or a home loan. That is what I am talking about.
Okay. How much it was, say, on March 2023?
It was around, I think, 20%.
Okay. Fine. Understood, sir. Sir, at bureau level, since we have data state-wise, any specific trends in terms of asset quality for the states of U.P. and Bihar, particularly in Bihar where there has been some noise around customer leveraging coming high. Any trends at bureau level?
No, I don't think there is anything like this. Because let me tell you that I have also personally traveled to Bihar. I think one thing which people are missing in Bihar is that the Bihar economy is also accentuated by a lot of domestic remittance. If you today see, the highest domestic remittance goes to Bihar. People who work out of Bihar will send the money to their household. I don't see any such thing in Bihar, and there are no such trends.
Got it, sir. In terms of our credit cost, you mentioned that it would be less than 3% for March FY 2024. What would it be, sir, on steady state basis, FY 2025 and beyond?
Steady state, we will give some guidance, but we would definitely like to reduce it. We will guide you in next two, three quarters.
Okay, fine. The last data-giving question from my side. How many branches you said that you will be opening this year?
160, 170 additional branches will open this year.
Okay. In H2, yeah? Or in total FY?
Overall.
Okay. Overall. Fine. Yeah. Got it, sir. That's it from my side. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good morning. Sir, just one question. While you have already explained these forward flows during the quarter were predominantly because of the unseasonal rainfall and flooding. If you could just elaborate that a little bit more. Because the forward flows into state two and state three are higher than what we've seen for the other players. Would you attribute that predominantly to the geographical mix that we have versus some of the other listed players? The other thing is that, is it predominantly flooding that is kind of leading to this, or is there some genuine stress that you are seeing in rural India? Is something that I was trying to understand. Thank you, sir.
Yeah. First, I can tell you there's no genuine stress in rural India. I have personally traveled to four or five states in the last two to three months just to understand how the trends on inflation, impact of inflation, our customers' income sources, how are they borrowing, what are their economic activities. I can tell you, and now you see even two days back, Mr. Modi has, the Pradhan Mantri Garib Kalyan Yojana has been extended for another five years, which directly benefits the customers which we serve, and really take out the inflation part as far as the food is concerned. I don't see that. As I mentioned to you that after COVID, we have seen three, four states, which we mentioned, Punjab, Haryana, Rajasthan, Gujarat, have not come back the way other states have come back.
Then this whole nature's fury, which is the unseasonal rain, which impacted all these states along with some portions of M.P., U.P., Bihar and all that. That is what we are trying to say. That yes, already we were working with the clients in some of these states, especially the four states, and then they were hit by these rains, so the recovery has got prolonged. Otherwise, there is no such issue, and as I have mentioned earlier, we are working with these clients. Our portfolio concentration in some of these states overall is around 12%-15%, not a major worry. You will see in the next two, three quarters, even improvement. We will recalibrate in some states. We may decide not to go in one or two states. We'll recalibrate our strategy and which we are internally discussing.
We are on the top of the situation, and we do not see anything systemic here.
Hello? Perfect, sir. Just one follow-up. This then means that it is fair to conclude that at least in your top states of Bihar, U.P. and M.P., you are not seeing anything unusual or any stress there.
No. Nothing unusual.
Got it. Sir, and just one.
If you remember, I have been guiding on, I can just additionally mention there, I have been guiding that even the top three states, all the state elections, three states were significant for us, which is Chhattisgarh, M.P. and Rajasthan. Chhattisgarh, I think polls are happening today. So model code of conduct is already in all the other states. There has been no impact of elections. State elections are critical for us and I have been saying this that as a sector also we have been working, but there has been no impact.
Got it, sir. Just one last question from my side. You have long advocated a lot of consistency in your delivery. Whether it be a steady improvement in asset quality and the way in which you kind of want to grow your franchise. Given that, at least Q2 disbursements, I believe were a little bit impacted because of unseasonal rains. Can we now expect that, second half of this fiscal year, you look to accelerate your disbursements a little bit to get to those mid-20s kind of an annual growth this year?
Absolutely. I already mentioned our run- rate for September, October is average INR 850 crore. Even though this month initially we just started a good traction. Yes. We are very confident that what we have been guiding with mid-20s growth will happen this year.
Got it, sir. That is all from my side. Thank you. All the very best to you and the Fusion team.
Thank you.
Thank you. The next question is from the line of Himanshu Taluja from Aditya Birla Mutual Fund. Please go ahead.
Hi, sir. Good morning. Sir, just two data grouping questions. One is the write-offs. Since you have changed the write-off policy from 360 to 270 odd days, what was the impact of the quarter because of this change in the accounting? I think you have changed the last quarter. So if you can just give what was the exact impact of this.
Himanshu, as we did it in post Q1 you have seen a write-off of INR 59 crores, and now you have seen slightly more elevation because of the policy change, that it has tuned to near about INR 42 crores extra write-off which we have did in this quarter.
Clear. Sir, the second question is, since you mentioned the collection efficiency of 95.5%, and including the arrears is 97.5% and 6%. So can you just give what was the exact denominator in the computation of 95.5%? The idea is to understand whether it includes the GNPA. Also, you have some bit of write-offs are the part of the denominator in the computation of 95.5%. What was the exact denominator?
Himanshu, as far as the current collection is concerned, the denominator is very simple. What was the current demand for that month? That is it. It does not include write-offs. That is one. When we talk about arrears, it is basically any overdue for previous months which we collect includes overdue.
Fair, sir. Thanks.
Yes, any recovery from the write-off will also be part of the overdue only.
Fair. Got it, sir. Clear. Thanks, sir.
Thank you.
Yeah.
Thank you. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Advisors. Please go ahead.
Hello.
Yes, Pranav.
Good morning, sir. Congratulations on the good sales numbers. I am referring to slide on branch vintage, and thank you for the disclosure. It really helps us understand the context of growth. But just looking at a more longer term perspective, you mentioned that the near term growth was slightly impacted because of floods. But when I look at, say, two or three years hence, should one assume that the increasing vintage of these branches that are less than three years, that benefit starts to flow in and the growth can be above industry for the next couple of years. Is that a fair assumption to make?
No. Because if you see, we will always add more branches, Pranav. We will add more branches. So we have split 100 branches in two and a half years. So it is not that. If you look at the same slide, March 2022, less than one year, 190 branches. Which is now 100, and look at the past contribution. So we will always keep on adding branches. Also, you see, right now, our branch, if you compare us with the leader, our overall RO handles the field officers. The AUM which he handles is INR 1.4. There is a scope to grow there. So, all these things will play. I do not think that is a fair assumption.
No, sir. Actually, I was coming from the context that when we see the vintage as on March 2022, we have seen the past contribution from the one to two and two to three year branches grow significantly. All I was trying to understand was that, going forward, would this also continue to contribute, in terms of growth and B, in terms of operating leverage? Obviously, I appreciate the fact that we will continue to open new branches, and that will be an additional driver of growth.
These are also. Because if you see the bulging between one-two years, it was 119. So from 190, the next bucket move was 190, but this is from 100 to 233. You see the bulging between.
Absolutely, sir.
The years between one to two and two to three years is because of that only, Pranav.
Absolutely, sir. Thank you. The second question is in terms of the credit costs and write-off. You mentioned that you are confident of keeping the overall credit costs for FY 2024 below 3%. Is it fair to assume that the impact of this change in write-off policy that happened last quarter should settle down by March 2024, and then from March 2024, given that the new write-off policy has settled and the impact of these floods that has happened this year will also have settled. Is it fair to assume that 2025 could see significantly lower credit costs?
Yes, Pranav. It is a very fair assumption. Our endeavor would be in this direction only.
Okay, sir. Thank you so much, sir. Good luck for the future quarters.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Gaurav Maheshwari for closing comments. Over to you, sir.
Thank you, this is Devesh Sachdev. Thank you very much. Happy Diwali to all of you.
Thank you very much, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.