Shares of Magma Fincorp were locked in the 10 per cent upper circuit band at Rs 84.95, surging 45 per cent in three days, after the company said disbursements in December quarter (Q3FY21) grew by 45 per cent year on year (YoY) driven by pick-up in used assets and affordable housing.
The company registered improvement in collections, with collection efficiency of 90 per cent in October and November, and 94 per cent in December 2020. The bounce back in vehicle sales has been stronger than anticipated and demand for mobility and own housing will drive lending in 2021, it said.
The stock of the non-banking finance company was trading at its 52-week high level in an otherwise subdued market. Till 01:35 pm, a combined 7.15 million equity shares had changed hands on the NSE and BSE, and there were pending buy orders for 680,000 shares. In comparison, the S&P BSE Sensex was down 0.53 per cent at 51,058 points.
Magma Housing Finance (MHFL), a wholly owned subsidiary of Magma Fincorp, continues to carve out a niche for itself in the specialized affordable housing finance space. MHFL has progressed in its action for raising capital with the aim of accelerating growth in this segment amid strong demand. The company expects to receive healthy interest from potential investors in Q4.
Magma HDI General Insurance has also received firm interest from few parties for capital raise, with definitive alignment to be reached in foreseeable future, the company said. These developments could sharply strengthen the company's capital position and growth trajectory.
"The company has undertaken various strategic initiatives to unlock value for its shareholders. It has sharpened focus on high RoE products in Asset Backed-Finance (ABF) business (i.e. Used assets, tractor, auto lease and SME), the share of focus products in ABF AUM is expected to increase from around 58 per cent currently to 83 per cent by March 2020. Capital release of around Rs 210 Crore is expected in FY21, which shall get deployed towards the growth of focus products," the company said.
Analysts at Emkay Global Financial Services believe that Magma will return to the growth path in FY22E with gradually improving asset quality as the company trims the legacy portfolio.
"Considering the prevailing uncertainties, we keep our loan growth expectations realistic despite attractive valuations. Given the run-down of the traditional book despite the normalization in demand, we believe that AUM growth will not be too easy to come by," the brokerage firm said in result update.