magma fincorp has come out with good q2 fy 13 results and management seems to be upbeat about the growth in next few years. stock is available at close to book value.
attached monthly chart shows a cup and handle formation in longer term monthly chart. comments in chart.
This is a very good proxy play on rural theme. KKR who is an investor here is transforming the company by bringing in right talent and systems. They want to make it one of the largest NBFC’s in country
Companies collection and fraud practices are one of the best amongst NBFC’s.
On the negative side like any other NBFC company is exposed to black swan events.
PS- I am invested hence views may be biased
Magma suffers from low ROAs which needs to jack up for the company to catch market fancy. They need to rein in costs to income ratio.
Request you to have a relook at Magma. There was an accounting change in FY12 which resulted in lower income being recognised. As per the com Sep 2012 was the last quarter for the temporary setback to finish.
The Fy 11 ROE was 23 %. From the current ROE of 9% it should normalise to that level in FY 14. Same is the case with ROA. They havent securitised their loan book this year and will be doing it in second half, so that should also help ROA.
They seem to be an excellent play on rural finance. Just started the general insurance business and gold loan business and have recently acquired housing loan portfolio of GE Cap. All these business seem to be complimentary with their current distribution channel involving vehicle dealers and feet-on-street.
Branches increased from 200 to 240 this year. Very conservative company which writes-off default loans over 180 days leading to no NPAs on the book. Writeoff itself is only 0.48%. NIM is 4.91%. Cost of fund is low at 10.6%.
Reading the annual report, con-calls and investor presentations makes me feel they are lining up the foundation for a great rural based finance company. The opportunity size seems to be impressive.
Currently available at a forward PE of 13-15.
cup and handle pattern confirmation was a break and close above 70 which has happened and now it seems fireworks will follow.
:)) we love fireworks! But what is the target you see in the charts? And what is your fundamental take?
I am comparing with shriram transport and others and will post an update after I am done with it.
pattern targets post breakout from cup and handle is around 140-150.
From Capital Market
Magma Fincorp net profit rises 192.38% in the December 2012 quarter
Sales rise 56.45% to Rs 405.55 crore
Net profit of Magma Fincorp rose 192.38% to Rs 33.01 crore in the quarter ended December 2012 as against Rs 11.29 crore during the previous quarter ended December 2011. Sales rose 56.45% to Rs 405.55 crore in the quarter ended December 2012 as against Rs 259.22 crore during the previous quarter ended December 2011.
Particulars Quarter Ended
Dec. 2012 Dec. 2011 % Var.
Sales 405.55 259.22 56
OPM % 68.60 70.90 -3
PBDT 57.45 23.05 149
PBT 48.75 16.72 192
NP 33.01 11.29 192
In the Consolidated performance, net profit rose 175.57% to Rs 36.43 crore in the quarter ended December 2012 as against Rs 13.22 crore during the previous quarter ended December 2011. Sales rose 55.20% to Rs 423.95 crore in the quarter ended December 2012 as against Rs 273.16 crore during the previous quarter ended December 2011. Magma Fincorp entered into definitive agreements for the acquisition of 100% equity share capital of GE Money Housing Finance subject to completion of standard conditions precedents including receipt of relevant regulatory approvals.
Magma Fincorp has successfully completed the said acquisition, in line with the definitive agreement and taken ownerships of 100% equity share capital of GE Money Housing Finance, effective 11 February 2013. GE Money Housing Finance has a home loan portfolio of approximately Rs 540 crores as on 31 January 2013.
I like Magma and have been following it for a few years. Agree with Vinod Ms regarding reversion to high RoEs in FY14 and beyond. Their weighted average realized interest rate is close to 16%, which figure should increase to 17%plus over next 6 quarters. Interest cost will not rise materially, leading to better net interest margin (currently 5.4%). Also, cost to income ratio will fall with increasing size. Home loan business is actually 1400 crs. (half home loan half builder loans). But the contribution to net level will happen only in FY14. They acquired it for 1 times book value(without equity dilution), which is cheap. Branches overlap, and are being rationalised. This will sharply increase profitability FY14. FY13 BV should be 67, so trading at 1.2X BV. 4Q13 and 1Q14 will be weak, though profits will still increase meaningfully. Can be bought at CMP.
Further to my earlier post, VC Cicrle reports that PE firm Chrys Capital has bought 13% stake through open market purchases. This is positive, since I’ve seen Chrys invest successfully in the BSFI space over the last decade. They have made 3-6X return on their initial investments in Shriram Transport, Axis Bank, Shriram City union Finance. I know for a fact that they were circling Magma in 2009, but for some reason they did not invest. Instead, KKR made the investment. Now this news of market purchases by a successful investor inbanks/NBFCs is quite positive.
Disclosure: I own Magma at average cost of 70.
I had experience with Magma Fincorp as customer. not as investor.
Their customer care services has no merits and I am surprised that they don’t care for emails / calls / legal notice etc.
Will you invest in this even it become penny ?
Sanjay Chamria, VC & MD,add the call.Highlights Capital Mkt:
- As per the company, the recent sharp diesel price reduction would help improve its collections. Company also expects the diesel price cut to improve the demand for vehicles.Mortgage, tractor and used vehicles have mainly contributed to the AUM growth of the company. Meanwhile, the commercial vehicle segment continued to de-grew even on lower base.Share of tractors, used assets, mortgage and SME Loans has increased to 56% in Q2FY15 from 27% in FY12.
- As per the company, improving share of mortgage, tractors and used vehicles helped to improve Net Interest Margins (NIMs).The company has diversified portfolio of 7 products with the highest share of a single product less than 30% of total book.Expense ratio of the company was mainly pressured by technology related expenses and expensed incurred for improving collection efficiencies.The company focuses on steady growth and sustainable profitability.
- The company expects growth in the assets under management (AUM) at 13-15% for FY2015.Tax rate of the company has been lower due to securitsation income.Collection efficiency stood at 92.5% in Q2FY2015.
- On capital adequacy front, the company can fund upto 15% growth in AUM from ploughing back of internal accruals.The company has been exiting the gold loan business.The Mortgage Finance and General Insurance business launched during the last two years by the Company have achieved scale and are contributing to the overall group profitability.
- Magma follows conservative NPA recognition at 4 months default & creates higher provision compared to RBI norms.The company sees worst on the portfolio quality over now and embarking on a path to recovery with the economicrecovery over next couple of quarters.
P/BV is 1.33 and P/E is 10.42. collection percentage is >95% .what is your take?
CONFERENCE CALL - from Capital Markets
Targets loan growth of 10-12% for FY2017
Magma Fincorp conducted a conference call on 13 May 2016 to discuss the financial results for the quarter ended March 2016. Sanjay Chamria - Vice Chairman & Managing Director, Magma Fincorp addressed the call:
- Over the last one year, the company has realigned its product mix in line with the expected risk adjusted return, and focused more on mortgages, SME, used assets, and tractors. These products now contribute 58% of loan book and 67% of disbursals. The company expect over the next couple of years that these four products will have shareof 70% of loans.
- NIMs have improved to 7% in FY 2016 from 6.2% in FY 2015, driven by increased use of technology, rationalization of structure, alignment of the product geography mix.
- Opex/asset ratio has come down from 3.7% in FY2015 to 3.4% FY2016. Opex to NII has improved from 60% in FY2015 to 48% in FY 2016.
- Given the weak economic environment and lack of government spending in rural India, the company has recorded higher credit cost in FY2016. Despite the higher credit cost, the NIM expansion coupled with cost efficiency has improved ROA from 1.3% to 1.4% in FY2016. The company expect to improve ROAs to 1.8% to 2% in couple of years.
- On a 120 day DPD recognition basis, both the GNPA and NNPA are largely unchanged at 8.1% and 6.4% respectively. The company continues to be ahead of the RBI NPA guidelines and has made provisions on the basis of 120 DPD, complying with the requirements effective FY2017. As per the company, the NPAs would about 1% and 1.5% more on 90 DPD basis.
- The company is observing an improvement in collections, while the company expects to see reduction in NPAs with the higher rural spending and normal monsoon.
- Repossessed asset stock is about Rs 60 crore.
- The loan book declined 7% yoy to Rs 18200 crore, while the company expect to start growing the book with the new structure stabilizing.
- The company is looking at 10% to 12% loan growth and disbursals growth of about 35% in FY2016, so the impact of these two will be a significant improvement in the NPA ratios both at a gross level and a net level.
- Budget 2016-17 emphasize on rural India and the regions where Magma operates, increase in MNREGA allocation and Rabi crop MSP hike are the key positive steps. Forecast of a normal monsoon after two consecutive years of shortfall will further boost the rural economy.
- The company has raised capital in March 2015 and do not see any need for capital in FY2017.
- The compnay has been focusing on organizational restructuring and rolled out the new structure from December 2015 named as project smart. The first five months have shown encouraging results. The process has now stabilized and there is now a scale up time for the company.
- The company is expecting good traction in the business and further improvement in the margins.
- The company will continue to focus on growing business in mortgage SME used assets and tractors.
- The company expect both disbursement and the loan book growth to improve significantly in the next couple of years. In the asset backed financing business which includes tractors, used vehicles as focus products, the growth will be driven by newer branch additions, focused channel activation and increased cross sell.
- As new business model is stabilized, the company has shifted focus on increasing branch strength by going deeper and opening branches in talukas. The company plans to add 50 more branches at taluka level in FY 2017, of which 15 to 20 would be added by June 2016.
- The existing branches are currently operating at 65% capacity, hence the company can grow the business with no additional cost. The benefits of operating leverage would be visible in the latter half of the year.
- In the mortgage business, the company continue to focus on the lower ticket size home loans and loan against properties. Housing finance subsidiary will be more like affordable housing finance focused on Tier II, Tier III locations, self-employed nonprofessional customers with an average ticket size of less than 15 lakhs and originated by own employees.
- SME business focusing on the lower ticket size loans of Rs 20 lakhs will be highest ROA product and would double the loan book size in a couple of years.
Key risk: Asset quality, profitability and capitalization are the key rating sensitivities
Concall - Q3 FY 2017
Feb 10, 2017 - 11 am
Dial in numbers -022 3960 0983
Shot up by 12 % today…
What’s changing? Any idea??
Selling npa…Strengthening balance sheet in progress
Past record is not a good indicative of future performance.
I do follow this company…Chairman is Mr Narayan Seshadri…He is in PI and chairman of Astra zeneca also. Has high holding in PI and over the period all those stocks have performed well
Quality of management bordes well!!
Over a couple of years, Magma Fincorp and its subsidiary Magma ITL Finance (mainly into Tractor Financing) has accumulated a lot of NPAs in their account. A recent merger was announced which seems a way to consolidate both the companies and have joint efforst in relation to reducing NPAs and improving credit margins.
Check out the article on the merger announced. - Magma Fincorp merges Magma ITL Finance