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Results in line, high yields support earnings even as NPLs rise. Magma reported a strong topline due to its shifting focus on high-yield businesses, even as losses in the CV/CE segment did not abate. While the new focus segments viz. used assets, SME (unsecured) and tractors are cyclical as well, the company has been able to maintain high collections in these businesses. We expect a gradual improvement in Magma’s performance on stronger earnings and a moderation in credit cost over the next few quarters. We revise estimates and retain ADD with a price target of `135 (no change).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Earnings broadly in line Magma’s PAT (`451 mn, up 25% yoy) was 6% above estimates. Strong NII (up 32% yoy) was the key earnings driver primarily due to high NIM (5.8% versus 5.3% in 2QFY15 and 5% in 3QFY14) even as loan-book growth was moderate at 13% yoy. Provisions remained high as NPLs (on 120 dpd) increased to 4.9% (3.9% on 180 dpd) versus 3.6% (2.5% on 180 dpd) in 3QFY14. Cost-to-income ratio moderated to 57% from 60% in 2QFY15 and 3QFY14. Shifting product mix helps Magma has focused on four key products viz. used vehicles, tractors, unsecured SME loans and mortgages. The share of these products has increased to 48% of average loans in 3QFY15 from 45% in 2QFY15 and 36% in 3QFY14. The first three segments have driven higher asset yields and NIM. Strong NII growth helped offset the impact of high 62% yoy rise in provisions. According to the management, collections in the CV portfolio remain weak (though these were marginally better in the last week of November and December). Nevertheless, securitization income declined to `220 mn in 3QFY15 from `270 mn in 2QFY15 due to a 3x rise in EIS writeback. Retain ADD, price target of `135 We are revising our estimates (-3% to +1%) to factor higher margins due to the shift in portfolio, higher provisions and marginally higher operating expenses. We believe that gross NPLs will moderate over time as the CV cycle picks up; meanwhile, improving profile will support earnings. The share of the four focus segments (used vehicles, tractors, SME and mortgages) will increase to 55% of loan book in FY2016 from 50% in FY2015 and 43% in FY2014. Strong focus on collections and risk-protection mechanisms has helped Magma maintain high collections in tractor loans, despite the weakness in the rural economy.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05022015pu.pdf
Results in line, high yields support earnings even as NPLs rise. Magma reported a strong topline due to its shifting focus on high-yield businesses, even as losses in the CV/CE segment did not abate. While the new focus segments viz. used assets, SME (unsecured) and tractors are cyclical as well, the company has been able to maintain high collections in these businesses. We expect a gradual improvement in Magma’s performance on stronger earnings and a moderation in credit cost over the next few quarters. We revise estimates and retain ADD with a price target of `135 (no change).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Earnings broadly in line Magma’s PAT (`451 mn, up 25% yoy) was 6% above estimates. Strong NII (up 32% yoy) was the key earnings driver primarily due to high NIM (5.8% versus 5.3% in 2QFY15 and 5% in 3QFY14) even as loan-book growth was moderate at 13% yoy. Provisions remained high as NPLs (on 120 dpd) increased to 4.9% (3.9% on 180 dpd) versus 3.6% (2.5% on 180 dpd) in 3QFY14. Cost-to-income ratio moderated to 57% from 60% in 2QFY15 and 3QFY14. Shifting product mix helps Magma has focused on four key products viz. used vehicles, tractors, unsecured SME loans and mortgages. The share of these products has increased to 48% of average loans in 3QFY15 from 45% in 2QFY15 and 36% in 3QFY14. The first three segments have driven higher asset yields and NIM. Strong NII growth helped offset the impact of high 62% yoy rise in provisions. According to the management, collections in the CV portfolio remain weak (though these were marginally better in the last week of November and December). Nevertheless, securitization income declined to `220 mn in 3QFY15 from `270 mn in 2QFY15 due to a 3x rise in EIS writeback. Retain ADD, price target of `135 We are revising our estimates (-3% to +1%) to factor higher margins due to the shift in portfolio, higher provisions and marginally higher operating expenses. We believe that gross NPLs will moderate over time as the CV cycle picks up; meanwhile, improving profile will support earnings. The share of the four focus segments (used vehicles, tractors, SME and mortgages) will increase to 55% of loan book in FY2016 from 50% in FY2015 and 43% in FY2014. Strong focus on collections and risk-protection mechanisms has helped Magma maintain high collections in tractor loans, despite the weakness in the rural economy.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05022015pu.pdf
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