Magma Fincorp locked in 5% upper circuit; stock zooms 114% in 2 weeks

Rating agencies, CARE and ICRA, placed the rating of the company's long/short term bank facilities on watch with developing implication

Shares of Magma Fincorp (MFL), on Friday, were locked in 5 per cent upper circuit at Rs 125.05; also its fresh 52-week high, on the BSE after rating agencies placed the rating of the company’s long/short term bank facilities on watch with developing implication.

The trading volumes on the counter more-than-doubled with a combined 7.77 million equity shares changing hands on the NSE and BSE, till 11:02 am.

In the past two weeks, the stock of the non-banking finance company (NBFC) has zoomed 114 per cent after the company reported good October-December quarter results and further announced that Adar Poonawalla-controlled Rising Sun Holdings will acquire a 60 per cent stake in the company by subscribing to Rs 3,456-crore preferential issue. After the infusion of capital, Magma and its subsidiaries will be renamed and rebranded as 'Poonawalla Finance'. The company said that disbursements in Q3FY21 grew by 45 per cent year-on-year (YoY), driven by a pick-up in used assets and affordable housing.

As part of the deal, Magma Fincorp will allot 458 million shares to Rising Sun Holdings, and 35.71 million shares to Sanjay Chamria and Mayank Poddar, Magma and Poonawalla Finance. Poonawalla Finance is an existing finance company owned by the Poonawalla family, which owns and controls the Serum Institute of India.

Meanwhile, ICRA and CARE Ratings placed the rating of the company’s long-term fund-based term loans on watch with developing implication, the company said. The company has also received a communication from ACUITE whereby the rating of the company’s unsecured subordinated redeemable non-convertible debentures has been placed under watch with positive implication.

ACUITE said the expected equity infusion of Rs 3,456 crore in the Company Limited will strengthen the capital position of Magma and its subsidiaries in a very significant manner which in turn will help to enhance its business profile over the medium term.

The proposed capital infusion would be a positive for the group's capitalisation profile and would provide capital for both absorbing losses as well as fund growth over the medium term, the rating agency ICRA said. The transaction is subject to regulatory approvals and ICRA would monitor the developments on this transaction and would take suitable rating action once it has clarity on the proposed business model of the company and the likely impact on the various credit metrices, and other organization related changes, it said.

The proposed capital infusion would be a positive for the group's capitalisation profile. The above transaction is subject to various regulatory approvals and CARE would continue to monitor the developments in this regard and will take a view on the ratings once the transaction is completed and impact on the credit risk profile of the Company including future business strategy is clear, CARE Ratings said.