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Magma Fincorp
We cut estimates & price target due to lower NII, but retain a Buy
On lower net interest income, Magma’s 3QFY12 net profit fell 63.3%
yoy to `113m. We cut our estimated EPS for FY12, FY13 and FY14 by
~29%, 14.2% and 12.1%, respectively, due to lower NII, given MTM
forex losses on borrowings and subdued securitization in FY12 (with
consequent higher cost of funds). We lower our price target from `80 to
`73, yet retain a Buy as we expect improved FY13/14 profitability to
drive up valuations.
Reported PAT declined 63% yoy to `113m mainly due to lower net
interest income. However, comparable proforma PAT (consistent
accounting policy and same off-book loan proportion to AUM) for
9MFY12 was `1.1bn, vs. `772mn in 9MFY11, up 48.5% yoy.
Net interest income declined due to one-offs. NII was pulled down by:
1) changes in accounting policy for securitization income, 2) MTM forex
losses of `50m on preference debt, 3) back-ended loan growth during the
quarter (lower earning yields) and, 4) lower securitization activity and rising
interest rates pushing up cost of funds. We expect softening interest rates
and higher securitization in 4QFY12 to lead to better net-interest-income
growth than in 3QFY12 (but, lower than our earlier estimate).
Business growth and asset quality continue robust. Disbursements
grew 50% yoy in 3QFY12, to `19bn and the share of high-yield loans was
25% vs. 23% in 2QFY12. Asset quality is robust, with collection
efficiency of 100% in 9MFY12 and credit cost at 0.22% of average AUM
(the lowest since FY07).
Valuation. We expect return ratios to improve on higher securitization
income in FY13/14, driving valuations up. At our revised price target of
`73, the stock would trade at PBV of 1.3x FY12e and 1.1x FY13e.
Risks: Economic slowdown and thereby slower loan growth and high NPAs;
regulatory changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Magma Fincorp
We cut estimates & price target due to lower NII, but retain a Buy
On lower net interest income, Magma’s 3QFY12 net profit fell 63.3%
yoy to `113m. We cut our estimated EPS for FY12, FY13 and FY14 by
~29%, 14.2% and 12.1%, respectively, due to lower NII, given MTM
forex losses on borrowings and subdued securitization in FY12 (with
consequent higher cost of funds). We lower our price target from `80 to
`73, yet retain a Buy as we expect improved FY13/14 profitability to
drive up valuations.
Reported PAT declined 63% yoy to `113m mainly due to lower net
interest income. However, comparable proforma PAT (consistent
accounting policy and same off-book loan proportion to AUM) for
9MFY12 was `1.1bn, vs. `772mn in 9MFY11, up 48.5% yoy.
Net interest income declined due to one-offs. NII was pulled down by:
1) changes in accounting policy for securitization income, 2) MTM forex
losses of `50m on preference debt, 3) back-ended loan growth during the
quarter (lower earning yields) and, 4) lower securitization activity and rising
interest rates pushing up cost of funds. We expect softening interest rates
and higher securitization in 4QFY12 to lead to better net-interest-income
growth than in 3QFY12 (but, lower than our earlier estimate).
Business growth and asset quality continue robust. Disbursements
grew 50% yoy in 3QFY12, to `19bn and the share of high-yield loans was
25% vs. 23% in 2QFY12. Asset quality is robust, with collection
efficiency of 100% in 9MFY12 and credit cost at 0.22% of average AUM
(the lowest since FY07).
Valuation. We expect return ratios to improve on higher securitization
income in FY13/14, driving valuations up. At our revised price target of
`73, the stock would trade at PBV of 1.3x FY12e and 1.1x FY13e.
Risks: Economic slowdown and thereby slower loan growth and high NPAs;
regulatory changes.
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