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Mixed performance
Magma’s Q3FY12 numbers reflect significant pressure on profitability though
disbursement growth remains strong and asset quality has held up well. It
should be noted that the recent change in accounting policies renders YoY
comparison inconclusive and misleading. We retain Buy rating on attractive
valuations with a revised price target of Rs101 (based on 1.3x FY14 BVPS).
Strong disbursements growth momentum continues: Disbursements in
Q3FY12 grew by a strong 50% Y-o-Y led by a jump in lending to the Cars &
Utility segment and consistently strong growth in high yielding segments. The
mix of the high-yielding assets increased to 25% in Q3FY12 vs 22% in Q3FY11.
The strong growth in Cars & Utility segment, despite moderation in overall
auto sales volumes in recent months, stems from Magma’s 1) rural and semirural
focus where demand remains healthy and 2) new branch additions.
Spread remains under pressure: Reported NIM remained under pressure (at
~4.3% in Q3FY12) led by a sharp jump in cost of funds which largely offset the
improvement in blended yields. Interest expenses include MTM forex losses of
Rs50m on preference debt. From a funding source perspective, the
management is making conscious effort to reduce reliance on the banking
system, which remains the chief source of funds. Importantly, Magma’s credit
ratings were upgraded recently and this should accrue benefit in terms of
competitive cost of funds over the medium term.
Y/E March (Rsmn) Q3FY12 Q3FY11 % YoY Q2FY12 % QoQ
Total Income 2,782 2,254 23.4 2,519 10.5
Interest Expended 1,758 968 81.6 1,447 21.5
Total Operating Exp 2,484 1,698 46.3 2,130 16.6
Pre-provisioning Profit 298 556 (46.4) 389 (23.4)
Provision for Std assets 25 0 20 27.6
Bad Debts w/o 67 70 (4.2) 67 (0.6)
Operating Profit 206 486 (57.7) 302 (31.8)
Profit before tax 206 490 (58.1) 302 (32.0)
Tax 67 163 (59.2) 90 (25.5)
PAT (before minority) 139 327 (57.5) 213 (34.7)
Source: Company, Centrum Research
Collection efficiency at 100.4%: Collection efficiency remains strong at
100.4% for Q3FY12 giving us significant comfort considering the challenging
operating environment. Strong collection efficiency and healthy credit quality
of the book helped contain the write offs (flattish QoQ). The write-off ratio for
Q3FY12 stands at 0.23% on annualized basis. While the CV industry is facing
immense challenges in terms of rising costs and declining margins, Magma
continues to display strong collection efficiency (101.2%) in the segment.
Earnings Revision: We have lowered our earnings estimates for FY12
(by ~40%) and FY13 (by ~25%) to account for significant pressure on
profitability and potential asset quality risks arising from increasing share of
high yield loans as well as difficult operating environment over the medium
term.
Cheap valuations, Reiterate Buy: We continue to like the stock due to cheap
valuations, large potential for growth, and a seasoned senior management
team that has seen multiple cycles and has a clear focus on containing risks.
Moreover, Magma would be a key beneficiary of reversal in interest rates due
to its reliance on whole-sale funding and large part of loan carrying fixed
interest rate. At its current multiple of 0.8x FY13 BVPS, Magma trades at a
significant discount to its peers and factors in potential risks amply. We
reiterate Buy with a revised price target of Rs 101 (based on 1.3x FY14 BVPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mixed performance
Magma’s Q3FY12 numbers reflect significant pressure on profitability though
disbursement growth remains strong and asset quality has held up well. It
should be noted that the recent change in accounting policies renders YoY
comparison inconclusive and misleading. We retain Buy rating on attractive
valuations with a revised price target of Rs101 (based on 1.3x FY14 BVPS).
Strong disbursements growth momentum continues: Disbursements in
Q3FY12 grew by a strong 50% Y-o-Y led by a jump in lending to the Cars &
Utility segment and consistently strong growth in high yielding segments. The
mix of the high-yielding assets increased to 25% in Q3FY12 vs 22% in Q3FY11.
The strong growth in Cars & Utility segment, despite moderation in overall
auto sales volumes in recent months, stems from Magma’s 1) rural and semirural
focus where demand remains healthy and 2) new branch additions.
Spread remains under pressure: Reported NIM remained under pressure (at
~4.3% in Q3FY12) led by a sharp jump in cost of funds which largely offset the
improvement in blended yields. Interest expenses include MTM forex losses of
Rs50m on preference debt. From a funding source perspective, the
management is making conscious effort to reduce reliance on the banking
system, which remains the chief source of funds. Importantly, Magma’s credit
ratings were upgraded recently and this should accrue benefit in terms of
competitive cost of funds over the medium term.
Y/E March (Rsmn) Q3FY12 Q3FY11 % YoY Q2FY12 % QoQ
Total Income 2,782 2,254 23.4 2,519 10.5
Interest Expended 1,758 968 81.6 1,447 21.5
Total Operating Exp 2,484 1,698 46.3 2,130 16.6
Pre-provisioning Profit 298 556 (46.4) 389 (23.4)
Provision for Std assets 25 0 20 27.6
Bad Debts w/o 67 70 (4.2) 67 (0.6)
Operating Profit 206 486 (57.7) 302 (31.8)
Profit before tax 206 490 (58.1) 302 (32.0)
Tax 67 163 (59.2) 90 (25.5)
PAT (before minority) 139 327 (57.5) 213 (34.7)
Source: Company, Centrum Research
Collection efficiency at 100.4%: Collection efficiency remains strong at
100.4% for Q3FY12 giving us significant comfort considering the challenging
operating environment. Strong collection efficiency and healthy credit quality
of the book helped contain the write offs (flattish QoQ). The write-off ratio for
Q3FY12 stands at 0.23% on annualized basis. While the CV industry is facing
immense challenges in terms of rising costs and declining margins, Magma
continues to display strong collection efficiency (101.2%) in the segment.
Earnings Revision: We have lowered our earnings estimates for FY12
(by ~40%) and FY13 (by ~25%) to account for significant pressure on
profitability and potential asset quality risks arising from increasing share of
high yield loans as well as difficult operating environment over the medium
term.
Cheap valuations, Reiterate Buy: We continue to like the stock due to cheap
valuations, large potential for growth, and a seasoned senior management
team that has seen multiple cycles and has a clear focus on containing risks.
Moreover, Magma would be a key beneficiary of reversal in interest rates due
to its reliance on whole-sale funding and large part of loan carrying fixed
interest rate. At its current multiple of 0.8x FY13 BVPS, Magma trades at a
significant discount to its peers and factors in potential risks amply. We
reiterate Buy with a revised price target of Rs 101 (based on 1.3x FY14 BVPS).
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