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Saturday, December 26, 2009

Magma Fincorp Ltd:-Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

In an exclusive interview Sanjay Chamria, Vice Chairman and Managing Director, Magma Fincorp, spells out his vision for the company`s future plans.

Scripscan:Magma Fincorp Ltd
BSE code: 524000


1)What is your outlook for the non banking financial companies (NBFC) in India?

ans)Non-banking financial companies (NBFCs) form an integral part of the Indian financial system. NBFCs have evolved from being mere adjuncts to monetary and credit policy to active participation in the mainstream financial sector, establishing themselves as worthy complements to the banking industry. An important factor in the role of NBFCs is their rural and semi-urban expertise.With the upswing of the Indian economy coupled with the role that the rural and suburban economies are expected play in such development, NBFCs` role in credit extension would become vital and extended. Given India`s large unorganized markets, there is a huge demand for unsecured credit in areas where banks do not have adequate reach. NBFCs fill this gap with their core strengths of strong customer relationships, excellent understanding of regional dynamics, well-developed collection systems and personalised services. As the global & Indian economy begins to look up, NBFCs are well poised to take advantage of the opportunities it presents.

2>Magma Fincorp has posted rise in net profit, which is 39%, could you tell us what factors that led to such an improvement? What sort of financial performance could we expect for the forthcoming quarter and fiscal?

ans)It`s a combination of several factors. Increased disbursements, higher revenues, improved operating efficiencies and higher percentage share of high yielding products in the total disbursement mix. Historically our NIMs have been in the range of 3.6- 3.8%. As a strategy to improve upon NIMs, we have put more focus on the high yield products and consequently their share improved in total business from 8% to about 13% in the H1 of FY 10. Our operating efficiencies too have improved from a 35% last year to around 30% this year so far. This has been instrumental in our registering highest ever NIM of about 5% in Q2. At the same time, we have also fared extremely well on the collections front, improving collections efficiency and lowering credit loss. We hope to sustain the levels of performance in all departments in the coming quarters.

3> Could you spell out your new initiatives over next year?

ans)We will continue to grow our business and our focus on the high yield products too will continue which will give us better NIM and higher returns. Our emphasis on strong collections mechanism too will continue and we would look for opportunities of leveraging the same. We plan to open more number of branches in West and South to improve our market share. The new business we are looking forward to is the general insurance business for which we have signed a joint venture agreement with HDI Gerling, which is part of the Talanx Group, the 3rd largest Insurance group in Germany. We hope to commence business once the necessary IRDA approval is received, which is expected shortly.

4> What is your vision of the NBFC for the next five years and how it would be achieved?

ans)Government`s thrust on infrastructure, financial inclusion & agriculture would provide fillip to financing opportunity. Addressing the core issue of infrastructure deficit, slack agricultural productivity and furthering financial inclusion have assumed paramount importance at the macro level. With the government contemplating a substantial growth in investments in infrastructure of USD 400 bn in the 11th plan (122% growth over 10th plan), financing opportunities across the entire gamut of equipment & vehicle finance covering key sectors viz., construction, roads, mining, ports etc are expected to emerge in a short period of time.CRISIL estimates the current financing industry size at USD 20 bn with certain key verticals viz., construction equipment & unorganized SME finance expected to log high double digit growth.We believe that Magma is well positioned to address an opportunity of USD 1 bn with vehicle financing making up 65% and the rest accounted by higher yielding products in the equipment and SME finance space. Our top priorities for the next five years would be to grow market share for all products, improve geographic reach, Increase contribution of high yield products, we must also exploit the distribution network better by rolling out more products and services in the next 5 years.

5>Would you like to convey any message to the shareholder and investors of the company?

ans)Being one of the first companies in our industry to have recovered from the global meltdown that engulfed our industry in FY09 and initial phase of FY 10, we would like to convey an optimistic message to our stakeholders and investors. We have taken several steps during the slow down stages, which we believed not only have strengthened the company, are also key to our success. The industry is expected to rebound in the coming days and Magma is in a position to take advantage from all positive developments. We are committed to deliver superior value in terms of returns to shareholders through operational excellence.

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