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Margin pressure visible, asset quality
robust
Magma reported strong Q4FY11 numbers with PAT surging
70% YoY to Rs449mn, helped by strong disbursement growth
and lower credit costs. While we are factoring in NIM erosion
over FY12 due to adverse interest rate environment, we expect
higher growth in high yielding segments to act as a hedge. We
peg NIM at 5.7% for FY12, a contraction of 20 bps yoy. It
should be noted that this NIM is not comparable with the one
reported by the company, due to difference in base.
Considering the significantly above expected result, we are
revising our estimates upwards. We maintain our Buy
recommendation and target price of Rs106.
Disbursements momentum continues: Disbursements in
Q4FY11 grew by a healthy 41% Y-o-Y led by jump in lending
to Cars & Utility segment and consistently strong growth in
high yielding segment. The mix of the high-yielding assets
increased to 19% in FY11 vs 13% in FY10.
NIM (Spread) contracts, but remain healthy: Reported NIM
declined to 4.4% in Q4FY11 from 4.7% in Q3FY11 led by an
increase in funding cost to 9.1% in Q4FY11 from 8.5% in
Q3FY11, while yield on advances grew marginally from 13.2%
to 13.5%.
Collection efficiency at 104%: Collection efficiency remains
strong at 104.4% in Q4FY11. The strong collection efficiency
and healthy credit quality of the book helped contain the
provisions at Rs139mn (down 2% Y-o-Y) with write-off ratio at
all time low of 0.24% for FY11 vs .3% for M9FY11.
Reiterate Buy with target price of Rs106: We continue to
like the stock due to the large potential for growth, the
presence of a seasoned senior management team that has
seen multiple cycles and has a clear focus on containing risks.
This is a business that could deliver +2% ROA and ~20% ROE.
Its current multiple of 1.1x FY13 Adj book is attractive in our
view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margin pressure visible, asset quality
robust
Magma reported strong Q4FY11 numbers with PAT surging
70% YoY to Rs449mn, helped by strong disbursement growth
and lower credit costs. While we are factoring in NIM erosion
over FY12 due to adverse interest rate environment, we expect
higher growth in high yielding segments to act as a hedge. We
peg NIM at 5.7% for FY12, a contraction of 20 bps yoy. It
should be noted that this NIM is not comparable with the one
reported by the company, due to difference in base.
Considering the significantly above expected result, we are
revising our estimates upwards. We maintain our Buy
recommendation and target price of Rs106.
Disbursements momentum continues: Disbursements in
Q4FY11 grew by a healthy 41% Y-o-Y led by jump in lending
to Cars & Utility segment and consistently strong growth in
high yielding segment. The mix of the high-yielding assets
increased to 19% in FY11 vs 13% in FY10.
NIM (Spread) contracts, but remain healthy: Reported NIM
declined to 4.4% in Q4FY11 from 4.7% in Q3FY11 led by an
increase in funding cost to 9.1% in Q4FY11 from 8.5% in
Q3FY11, while yield on advances grew marginally from 13.2%
to 13.5%.
Collection efficiency at 104%: Collection efficiency remains
strong at 104.4% in Q4FY11. The strong collection efficiency
and healthy credit quality of the book helped contain the
provisions at Rs139mn (down 2% Y-o-Y) with write-off ratio at
all time low of 0.24% for FY11 vs .3% for M9FY11.
Reiterate Buy with target price of Rs106: We continue to
like the stock due to the large potential for growth, the
presence of a seasoned senior management team that has
seen multiple cycles and has a clear focus on containing risks.
This is a business that could deliver +2% ROA and ~20% ROE.
Its current multiple of 1.1x FY13 Adj book is attractive in our
view.
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