Magma Fincorp hits 5% upper circuit for 2nd straight day, nears 52-wk high

The company has appointed Adar Poonawala as its chairman as part of a management overhaul following the Poonawala-controlled Rising Sun Holdings acquiring a controlling stake in it

Shares of Magma Fincorp were locked in 5 per cent upper circuit for the second straight day, up 5 per cent at Rs 143.05 on the BSE on Tuesday after the company appointed Adar Poonawala as its chairman as part of a management overhaul following the Poonawala-controlled Rising Sun Holdings acquiring a controlling stake in it.

The stock of the non-banking finance company was trading close to its 52-week high level of Rs 147.90, touched on May 10, 2021. Till 02:16 pm, a combined 1.01 million shares had changed hands and there were pending buy orders for 2.9 million shares on the NSE and BSE.

Magma Fincorp is now a subsidiary of Rising Sun Holdings Private Limited (owned and controlled by Adar Poonawalla), subsequent to equity raise of Rs 3,456 crore on May 6, 2021. The process for rebranding of Magma Fincorp is underway and the Company would take on the Poonawalla brand upon receipt of all requisite approvals (RBI approval for name change has been received).

The management said as the second wave of Covid-19 is subsiding, the new management is expected to drive business acceleration. The rebranding of the company as a Poonawalla Group firm is underway. The company’s cost of funds is expected to fall in line with the industry best, along with resultant improvement in credit rating and progress towards resilience under the Poonawalla brand, the management said.

Meanwhile, Magma Fincorp reported a loss of Rs 650 crore in March quarter (Q4FY21) after taking a one-time write-off of Rs 270 crore and management overlay provision of Rs 621 crore (factoring in the second Covid wave).  The company holds cumulative provisions to the tune of Rs 1,192 crore as of March 2021 and the management is confident of the adequacy of same to counter Covid related impact on future profitability. The company had AUM of Rs 14,225 crore as on March 2021.

“The company has already announced a change in management, under which Vijay Deshwal, Business head at ICICI Bank, will join as CEO from July’21. We believe the company is well-placed to attract new talent from across industries which would be the biggest trigger for overall growth. With change in guard, we do believe Magma 2.0 would be a journey of superior profitable growth, resulting in significant improvement in return ratios,” analysts at Emkay Global Financial Services said in result update.

Magma, after fund infusion, is well-placed on adequacy, promoter back-up and liquidity. Probable rating upgrades, lower cost of funds and ability to inject equity by the promoter (without fear of forced dilution) are the key positives, the brokerage firm said.