Magma's rural focus starts to bear fruit

Kolkata-based Magma Leasing is aiming for the top slot among retail finance company by 2007 as its strategy to develop rural and services businesses with focus on transportation and tractor sectors bear fruit.

As much as 66 per cent of Magma's business at present is generated from rural India.

The company has been growing at more than 60 per cent per annum for the last few years.

The strategy is to penetrate deep into its existing regions in a time-bound manner, which includes opening more branches in Madhya Pradesh, Tamil Nadu and Gujarat.

The company is also planning to bring Maharashtra, Karnataka and Kerala in 2006-07. The new locations will supplement Magma's existing presence in 15 states and are expected to help the company enhance its presence to 96 locations.

This would involve opening up of 40 more branches, and moving deeper into its targeted rural and semi-urban markets.

"Magma in a bid to emerge the number one has strategically entrenched itself in India's rural and semi-urban markets even as its competitors continued to focus on the urban areas," said officials from the company.

"This resulted in two headstarts for Magma: one, a first mover's advantage among companies seeking to profit from this untapped geographic space; and also protected margins in the rural area even as margins declined in a competition-intensive urban space,"they said.

"The model adopted by Magma was providing finance for commercial vehicles used in cross-regional transportation of cargo as well as multi-utility vehicles used to transport passengers as well as goods. The selection of these products continue to be justified as they represent the lifeline of rural India," said Magma sources.

The company is also banking on infrastructure development for a large part of rural India under different government-undertaken programmes.

For example, 170,000 villages are being connected under the Pradhan Mantri Gram Sadak Yojana (PMGSY), entailing construction of 369,000 km of fresh roads and upgradation of 368,000 km of existing ones.

"As roads are created where none existed and are metallised at stretches which were previously unsurfaced, new requirements will drive increased transportation demand and in turn, the need for acquisition of new commercial vehicles. As part of the rural strategy the company has already entered into a number of these nascent rural pockets with affordable products and services, enabling it to be present when demand is generated," they said.

The company disbursed Rs 1,371 crore in 2004-05 against Rs 867 crore in 2003-04 which translated into a total income of Rs 98.02 crore against Rs 82.08 crore "" a 19 per cent growth. Profit after increased 24.7 per cent at Rs 20.36 crore against Rs 16.33 in the previous year.