BackNew promoter breathes life into Magma Fincorp’s shares
Magma Fincorp reported decent metrics for the December quarter. It showed improvement in collection efficiencies to 94%, rise in disbursements of vehicle and affordable housing loans and stable yields
PremiumMUMBAI: Shares of non-bank financial company (NBFC) Magma Fincorp Ltd seem to have found a fresh lease of life, after languishing for more than a year, with the entry of a new promoter.
Rising Sun Holdings Ltd, promoted by Adar Poonawalla who also heads Serum Institute, will purchase 458 million shares or 60% stake in Magma Fincorp at Rs70 apiece. Poonawalla’s company will infuse Rs3,206 crore into Magma Fincorp while existing promoters would put in Rs250 crore. This infusion will boost the networth of Magma Fincorp by 120% to ₹6,314.8 crore post issue.
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While the deal is considered done by investors, it is still pending regulatory approval. Poonawalla Finance’s manging director Ajay Bhutada will be the MD of Magma Fincorp. A new chief executive officer will be appointed eventually.
Magma Fincorp bore the brunt of the liquidity crisis among NBFCs and also the pandemic last year. The company’s asset quality had remained elevated over past several years. Despite going through different phases of consolidation and reorganisation in the past decade, the lender has not been able to chip away its bad loan pile or even boost earnings, point out analysts at ICICI Securities Ltd. Gross bad loans were 6.9% of asset under management as of December, higher than 6.7% a year ago.
That said, Magma Fincorp reported operating decent metrics for the December quarter. It showed improvement in collection efficiencies to 94%, rise in disbursements of vehicle and affordable housing loans and stable yields. But asset under management showed a drop of 9.5% from a year ago period and analysts believe that AUM growth would remain subdued.
The deal with Rising Sun Holdings will infuse the much needed capital into Magma Fincorp. “We assign high probability of superior operating metrics and return profile in the medium term drawing comfort from strong corporate group backing, greater than 68% capital adequacy ratio (post infusion), improved credit rating outlook, operational synergies and business competitiveness," wrote analysts at ICICI Securities Ltd in a note.
Shares of the NBFC surged 10% today after languishing for over a year now. The entry of the new promoter has fired up shares but investors would now watch the actions of the new management in improving business prospects.
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