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MAGMA FINCORP
UNRATED (RS63, MCAP: RS8.2BN / US$183M)
• Magma, headquartered in East India, is an NBFC providing finance across diverse product segments – commercial
vehicles, construction equipment, cars, utility vehicles, tractors and SME loans. Magma operates mainly in rural and
semi-urban regions, which account for ~80% of its branches. Magma has created a strong position for itself, especially
in equipment and vehicle financing space, led by two factors: 1) little or no availability of banks and formal lending
institutes in its focus areas; and 2) focus on first-time buyers and small entrepreneurs.
• Strong growth ahead: The management expects strong loan growth of ~40% in FY12, driven by: i) strong industry
demand in CVs (20-25% growth), cars (30-35% growth) and construction equipment (rebound expected); ii) expansion
of branch network (200 branches by FY12, v/s 153 in FY10); and iii) increased availability of all products at the existing
branch networks. Magma reported 43% yoy and 12% qoq growth in disbursements in Q3FY11.
• Proportion of high yielding assets to increase: The company aims to increase the proportion of high yielding
products (tractors, used vehicles and SME loans) to ~25% in FY12, up from 13% in FY10. Increase in high-yield loans
would help Magma sustain margins in a rising interest rate environment. High yielding loans constituted 22% of
disbursements in Q3FY11, compared with 13% in Q3FY10.
• Margins to remain stable: Despite the rise in funding costs, the management expects margins to remain stable at 5.1 -
5.2% over the next few quarters as; i) continued growth in high yielding loans are expected to support margins; ii)
~75% of the book qualifies as priority-sector loans, and a huge demand by the banking systems for PSLs in Q4 would
help Magma negotiate superior rates.
• Superior collection efficiency: Magma has a collection efficiency of 100%, which has helped it maintain a low writeoff
ratio (write-off to total assets) of ~0.4%. Magma has segregated its business generation vertical from the credit
appraisal vertical, which has helped it contain delinquencies in this risky segment. Magma witnessed no NPAs on its
books in the past five years due to its prudent accounting policy – all contracts with more than 180 days past due are
treated as loss assets and are written off as bad debt.
• Funding mix: A PSL status of ~60% and consistent investment grade ratings of its debt instrument have provided
Magma adequate and continued financing lines. Currently, ~50% of Magma’s funding needs are financed through
working capital loans. Securitization has also been effectively used to enhance the company’s funding base. However,
with other lines of funding gaining scale, the management expects the share of securitization to decline to ~25% of
loan book by FY12 ( ~40% currently).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MAGMA FINCORP
UNRATED (RS63, MCAP: RS8.2BN / US$183M)
• Magma, headquartered in East India, is an NBFC providing finance across diverse product segments – commercial
vehicles, construction equipment, cars, utility vehicles, tractors and SME loans. Magma operates mainly in rural and
semi-urban regions, which account for ~80% of its branches. Magma has created a strong position for itself, especially
in equipment and vehicle financing space, led by two factors: 1) little or no availability of banks and formal lending
institutes in its focus areas; and 2) focus on first-time buyers and small entrepreneurs.
• Strong growth ahead: The management expects strong loan growth of ~40% in FY12, driven by: i) strong industry
demand in CVs (20-25% growth), cars (30-35% growth) and construction equipment (rebound expected); ii) expansion
of branch network (200 branches by FY12, v/s 153 in FY10); and iii) increased availability of all products at the existing
branch networks. Magma reported 43% yoy and 12% qoq growth in disbursements in Q3FY11.
• Proportion of high yielding assets to increase: The company aims to increase the proportion of high yielding
products (tractors, used vehicles and SME loans) to ~25% in FY12, up from 13% in FY10. Increase in high-yield loans
would help Magma sustain margins in a rising interest rate environment. High yielding loans constituted 22% of
disbursements in Q3FY11, compared with 13% in Q3FY10.
• Margins to remain stable: Despite the rise in funding costs, the management expects margins to remain stable at 5.1 -
5.2% over the next few quarters as; i) continued growth in high yielding loans are expected to support margins; ii)
~75% of the book qualifies as priority-sector loans, and a huge demand by the banking systems for PSLs in Q4 would
help Magma negotiate superior rates.
• Superior collection efficiency: Magma has a collection efficiency of 100%, which has helped it maintain a low writeoff
ratio (write-off to total assets) of ~0.4%. Magma has segregated its business generation vertical from the credit
appraisal vertical, which has helped it contain delinquencies in this risky segment. Magma witnessed no NPAs on its
books in the past five years due to its prudent accounting policy – all contracts with more than 180 days past due are
treated as loss assets and are written off as bad debt.
• Funding mix: A PSL status of ~60% and consistent investment grade ratings of its debt instrument have provided
Magma adequate and continued financing lines. Currently, ~50% of Magma’s funding needs are financed through
working capital loans. Securitization has also been effectively used to enhance the company’s funding base. However,
with other lines of funding gaining scale, the management expects the share of securitization to decline to ~25% of
loan book by FY12 ( ~40% currently).
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