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Published on 13/03/2019 10:13:08 AM | Source: Choice Broking Pvt Ltd

Update On Magma Fincorp Ltd - Choice Broking

Posted in Broking Firm Views - Long Term Report| #Magma Fincorp Ltd #NBFC #Broking Firm Views Report #Quarterly Result #Choice Broking

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‘Growth eases amid liquidly concern; assets quality improves’

Amidst turbulence time for NBFCs sector, Magma Fincorp Ltd. (MGMA) reported acceptable set of numbers for Q3FY19 with no major disturbance in business segments’ perfromance. Although the liquidity situation remained grim during quarter aftermath of IL&FS crises, MGMA reported 10% YoY growth in disbursements and 5.8% YoY growth in AUM. However, the business did not remain completely immune from the impact of sector’s crises as the disbursement growth slowed down to 10% YoY from 34% YoY in the preceding quarter. Mgmt articulated that the company’s low dependence on CP, strong presence in securitization market and banks’ loan also provided stability to the business. Alternatively, MGMA has reported strong performance in assets quality front and GNPA reduced to 6.3% v/s 9.5% in Q3FY19 driven by Rs4.5 bn of write-off, higher recovery than slippage. Credit cost also reduced to 1.3% during quarter compared to preceding quarters avg. of ~2% providing boost to profitability. Given the prevailing liquidity situation in economy, we cut our disbursement growth expectation by 6% for FY19E and ~3% for FY20E. As the liquidity scenario returns to normalcy, business growth will regain its pace in the coming quarters. We maintain our ‘Buy’ rating on the stock with potential price of Rs174, valuing business at 1.5 P/ABV (x) of FY21E adj. BVPS of Rs118.1.

 

Q3FY19 Result Update

Net interest income (NII) grew by 13.2% YoY (17.0% YoY in Q2FY19). Growth in NII slowed down due to pressure on interest income (8.8% YoY and 0.1% QoQ) and rise in interest cost (4.1% YoY and 4.5% QoQ). Sequentially rise in interest cost was due to increase in yield level driven by liquidity constraints and negative sentiments towards NBFCs. As per the mgmt, interest cost eased in Jan and it expects it to further ease in Q4FY19. Overall, there would be an increase of 50 bps QoQ in interest cost in Q4FY19, however the company is able to pass this increase on the entire mortgage book and fresh disbursal on other segments. OPEX increased by 16.3% YoY in line with our estimate, and PPOP rose by 12.5% YoY (14.1% YoY in Q2FY19). P&C reduced by (-)44.1% due to significant improvement in credit cost (1.3% in Q3FY19). Overall, net profit was reported at Rs739 mn which was 65% YoY higher than Rs448.4 mn in Q3FY18.

 

Business Growth

Disbursement increased by 9.9% YoY to Rs21.4 bn and AUM by 5.8% YoY to Rs165.1 bn. Disbursement growth across ABF segments remained sluggish include UV/Cars (1.2% YoY), CV (1.0%), CE (-3.3%), used assets (-0.6%) and agri finance (-1.7%). Thereby overall disbursement growth was mainly driven by SME (23.2% YoY) and mortgage (92.7% YoY). As per the mgmt strategy, no segment will account more than 20% share in AUM except used assets. While MGMA continue to leverage its expertise in financing across segments, used vehicles and LCV & SCV will remain key focus segments for business growth. For mortgage financing, the company is moving towards direct origination model whose share has increased to 80% by this quarter and 70% of incremental disbursement was towards home loans. On SME financing, mgmt. articulated that there would be significant improvement in customer approval time, productivity and portfolio quality once the credit engine (digital interpretation for arriving at a credit decision) go live in Q1FY20. Mgmt expect yield to remain in the range of 15.5-16% for the coming quarters.

 

Assets Quality likely to improve

Gross stage 3 assets (GNPA) was reduced by Rs5.1 bn to Rs9.46 bn in Q3FY19 from Rs14.5 bn in Q2FY19 owing to Rs4.5 bn of write-off and ~0.5 bn of recovery. Mgmt highlighted sequential improvement in GNPA going forward and credit cost to normalize to ~1% in next fiscal. EWI and CPMI, indicators used to asses stress, was reduced to 7.4%/4.7% v/s 8.9%/4.7% showing improvement in ABF portfolio. However ID and ED trend for housing and SME remained steady.

 

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