Magma Fincorp (Magma) is one of the larger non-banking finance companies in India (Rs94bn AUM). It has a diverse funding suite of CVs, cars, construction equipments, SME and tractor loans. It has recently entered into a JV with HDI Gerling of Germany for setting up a non-life insurance subsidiary in India. While Magma is a relatively diversified business, comparable listed peers would be SREI, Shriram Transport, Sundaram Finance.
Business Operations – Balance sheet loans formed only 30% of total assets under management (more emphasis on securitization of assets); Some of Magma’s recent diversification has been into higher yielding lending segments, e.g. used CVs, tractors and SME loans (13% of disbursements in 9MFY10, and management is seeking to raise this to 20% in FY11E), and we believe this is likely to support NIMs for the company. Focus on asset quality: maintains Zero NPLs; uses an accelerated write-off policy (100% write offs for 180+ day overdues).
The company has Strong distribution in East and North: one of the larger networks (150 branches, 4300 employees), expanding more in South and West (likely to open 15-20 more branches). More than 70% of assets qualify – easier access, lower cost of funding; c) Diversified product suite; and d) Relatively high return profile. On the other hand the company can impact NIMs in a tight liquidity / high interest rate scenario and Lacks scale – Relatively small player in each segment (less than 5% share in most segments).
Magma Fincorp is expected to report an EPS growth of 15% for FY 2010.