Magma Fincorp: A perfect shot
Magma Fincorp share price jumped over 11% in the morning session on February 11 on news that Adar Poonawalla-backed firm will acquire majority stake in the company.
Rising Sun Holdings, a company controlled in personal capacity by Serum Institute of India CEO Adar Poonawalla, announced a transaction on February 10 to acquire a controlling stake in Magma Fincorp (MFL), a non-banking financial company (NBFC).
The deal will be carried out via a preferential issue of Magma Fincorp’s equity shares worth Rs 3,456 crore. The deal also includes an open offer as per SEBI norms.
Earlier in week, the NBFC witnessed a strong improvement in its operations. The disbursements in December quarter (Q3FY21) grew by 45% year on year (YoY) driven by pick-up in used assets and affordable housing.
It has also registered improvement in collections, with collection efficiency of 90% in October and November, and 94% in December 2020. The bounce back in vehicle sales has been stronger than anticipated and demand for mobility and own housing will drive lending in 2021.
Meanwhile, it’s subsidiaries too are witnessing improvement in their performance.
Magma Housing Finance (MHFL), a wholly owned subsidiary of Magma Fincorp, continues to carve out a niche for itself in the specialized affordable housing finance space.
Magma HDI General Insurance has also received firm interest from few parties for capital raise, with definitive alignment to be reached in foreseeable future
Magma has undertaken various strategic initiatives to unlock value for its shareholders. It has sharpened focus on high RoE products in Asset Backed-Finance (ABF) business (i.e. Used assets, tractor, auto lease and SME), the share of focus products in ABF AUM is expected to increase from around 58 per cent currently to 83% by March 2020. Capital release of around Rs 210 Crore is expected in FY21, which shall get deployed towards the growth of focus products.
The NBFC is expected to return to the growth path in FY22E with gradually improving asset quality as the company trims the legacy portfolio.
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