Magma Fincorp Ltd. (MFL) is a non-banking finance company, incorporated on December 18, 1978 as ARM Group Enterprises Private Limited. Subsequently, Company was converted into a public limited company in 1980 and the name of the Company was subsequently changed to Magma Leasing Limited in 1993. In 2008, Company name was changed to Magma Fincorp Limited. It commenced financing business in 1989, and has almost three decades of experience in such business. MFL is engaged in providing asset backed financing for new and pre-owned auto and utility vehicles, tractors, cars and commercial vehicles, mortgage financing, financing to SMEs and distribution of general insurance products. Its customers include first-time buyers of vehicles, self-employed and non-professional individuals, small and medium entrepreneurs and customers with informal income and limited banking and credit history. As of September 30, 2018, MFL had around 11.00 lakh active customers, of whom approximately 5 lakh active customers were in financing businesses and 6 lakh active customers in insurance business. The company has a widespread branch network that forms an integral part of ability to service customers. As of December 31, 2018, it had a presence across 21 States in India through 309 branches with 1.1 million customers. For last three fiscals, MFL has (on restated consolidated basis) posted total revenue/net profits of Rs 2506.33 cr. / Rs 213.48 cr. (FY16), Rs 2405.31 cr. / Rs 12.73 cr. (FY17) and Rs 2298.59 cr. / Rs 230.42 cr. (FY18). Thus while top line has shown declining trends, net profits witnessed roller coaster ride. According to offer documents, it had written off Rs 606.86 cr. worth bad debts for FY17 against around Rs 375 cr. for FY16 and FY18. Its net NPAs have seen sliding pattern from 6.4% in FY16 to 5.6% for FY17 and 5.2% for FY18. As of 31.12.18, MFL's total AUM stood at Rs 16507 cr. with a capital adequacy of 22.6% and net NPA of 4.0%. Post issue its current debt equity ratio of 4.49 (as on 30.09.18) will stand enhanced to 4.91. As on 30.09.18 against paid up equity capital of Rs 53.86 cr. MFL has 2526 cr. plus free reserves. This issue is rated BWR AA / Stable by Brickworks Ratings India Private Limited, ACUITE AA / Stable Acuité Ratings & Research Limited (erstwhile SMERA Ratings Limited). The rating of NCDs by BWR and ACUITE indicate that instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk. Good Rating, and lucrative coupon rates make this offer a worthy option for investors looking for long term fixed income, but zig-zag financials will remain a concern. We give SUBSCRIBE rating to debt issue.
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