press release magma fincorp limited - care’s ratings · moderate diversified resource profile the...

1 CARE Ratings Limited

Press Release

Magma Fincorp Limited July 05, 2019

Ratings

Facilities/Instruments Amount

(Rs. crore) Ratings

1 Rating Action

Long term Bank Facilities

5,472.00 (Reduced from 7,184.28)

CARE AA-; Stable (Double A Minus; Outlook:

Stable) Reaffirmed

Long/Short-term Bank Facilities

349.58 (Reduced from 405.00)

CARE AA-; Stable/CARE A1+ (Double A Minus; Outlook:

Stable/A One Plus)

Total Bank Facilities 5,821.58

(Rupees Five thousand Eight hundred Twenty One crore and Fifty Eight lakh only)

Secured Non-Convertible Debentures (NCDs)

105.00 (Rupees One Hundred and Five crore only)


Stable) Reaffirmed

Proposed Secured NCDs 82.10

(Rupees Eighty Two crore and Ten lakh only)

Unsecured Subordinated Tier II NCDs

457.00 (reduced from 607.30 crore)

(Rupees Four hundred and Fifty Seven crore only)


Stable) Reaffirmed

Proposed Unsecured Subordinated Tier II debt

100.00 (Rupees One hundred crore only)

Perpetual Debt 116.40

(Rupees One Hundred Sixteen crore and Forty lakh only)

CARE A+; Stable (Single A Plus; Outlook:

Stable) Reaffirmed

Proposed Perpetual Debt

63.60 (Rupees Sixty Three crore and Sixty lakh only)

Commercial Paper issue (Carved out of working capital limit)

1,250.00 (Rupees One Thousand Two Hundred and Fifty

crore only)

CARE A1+ (A One Plus)

Reaffirmed

Commercial Paper issue 1,750.00

(Rupees One thousand Seven Hundred and Fifty crore only)

CARE A1+ (A One Plus)

Reaffirmed

Details of facilities/instruments in Annexure-1 Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities/instruments of Magma Fincorp Limited (MFL) continue to draw strength from Magma group’s long track record of operations, experienced management team, wide branch network and geographically and product-wise diversified asset portfolio with increasing share of high yield products. The ratings also factor in the healthy growth in disbursements in FY19 (refers to the period April 1 to March 31), increase in total income and improvement in profitability with increase in Net Interest Margin (NIM) and lower provisions/write-offs and comfortable Capital Adequacy Ratio (CAR). The Gross NPA as a percentage of advances also witnessed improvement as on Mar.31, 2019 with write-offs during the year and overall improvement in asset quality on account of continuous process improvement and tightening of credit norms. The ratings also factor in the moderate return indicators, subdued resource mobilization scenario in Non-Banking Finance Company (NBFC) sector and moderately diversified resource profile. Further, the ratings take note of the mismatch in the asset liability maturity profile as on Mar.31, 2019 in the over 2 months to 3 months bucket which, however, is supported and gets bridged by the undrawn committed bank lines and in the 6 months – 1 year time bucket on considering repayment of cash credit in upto one year bucket. The ability of the group to grow its loan portfolio, while improving profitability and maintaining asset quality, further diversification of resource profile and maintenance of adequate liquidity buffer, remain the key rating sensitivities.

1Complete definition of the ratings assigned are available at www.careratings.com and in other CARE publications


Press Release

Detailed description of the key rating drivers Key Rating Strengths Long track record and experienced management team MFL has been in asset financing business for more than three decades. Mr. Mayank Poddar, the Chairman Emeritus, and Mr. Sanjay Chamria, Vice Chairman and MD, have over three decades of business experience in the financial sector. The company is governed by a six-member Board of Directors, which includes two promoter directors and four independent directors. The Board comprises of a team of qualified and experienced professionals with considerable experience in functional areas. Further, the board is ably supported by a qualified senior management team. Pan-India presence with wide branch network MFL has a pan-India presence through a strong network of 310 branches (as on March 31, 2019) spread across 21 States/Union Territories. The group primarily caters to clients in rural and semi-rural markets and approximately 70% of the branches are located in these areas. The consolidated loan book of the company was diversified geographically with North contributing about 36%, East about 17%, South about 25% and West contributing about 22% as on March 31, 2019. Well-diversified product portfolio with increasing share of high yield products The group has a well-diversified asset portfolio with presence in utility vehicles/cars, construction equipment (CE), commercial vehicles (CV), used assets, tractors, SME loan, housing loans and loan against property (LAP). The share of high yield assets (i.e., used assets, Tractors and SME loan) as a percentage of gross loan Assets Under Management (AUM), remained high at 43.62% as on March 31, 2019 (44.54% as on March 31, 2018). Healthy growth in disbursements resulting in increase in advances outstanding The consolidated disbursement of MFL has witnessed significant growth in the last two years after de-growing in FY16 & FY17. The disbursements increased by 20% from Rs.7,287 crore in FY18 to Rs.8,757 crore in FY19, mainly contributed from CV, CE, Used assets, mortgage and SME loans. With growth in disbursements, MFL’s Loan AUM increased by about 8% to Rs.17,028.65 crore as on March 31, 2019 from Rs.15,800.79 crore as on March 31, 2018. However, with higher sell down through assignment route during the year, on-book gross loan portfolio increased by about 7% to Rs.15,645.29 crore as on March 31, 2019 vis-à-vis Rs.14,663.85 crore as on March 31, 2018 and the off-book portfolio increased by about 22% from Rs.1,136.94 crore as on March 31, 2018 to Rs.1,383.37 crore as on March 31, 2019. Growth in total income with improvement in profitability during FY19 MFL’s consolidated total income increased by about 8% a y-o-y basis from Rs.2,329.74 crore in FY18 to Rs.2,514.05 crore in FY19 due to increase in interest income, income from securitization and other income. The interest cost remained relatively stable at Rs.1,122.23 crore in FY19 vis-à-vis Rs.1,117.49 crore in FY18 and hence, net interest income increased from Rs.1,006.37 crore in FY18 to Rs.1,122.46 crore in FY19. The operating expenses remained relatively stable during the year. Though the write-offs increased to Rs.409.33 crore in FY19 (Rs.263.69 crore in FY18), there was a write back in provisions as per ECL and overall provisions/write-offs for the year was lower at Rs.265.39 crore in FY19 vis-à-vis Rs.315.95 crore in FY18. Consequently, with increase in net interest income, stable operating cost and lower provisions/write-offs, the PBT increased significantly from Rs.290.85 crore in FY18 to Rs.442.36 crore in FY19. However, the PAT increased only to Rs.304.01 crore in FY19 from Rs.236.89 crore in FY18 due to higher tax burden with deferred tax liability of Rs.104.67 crore in FY19. Significant improvement in asset quality The company has taken various initiatives over the years such as calibration of product mix, adoption of credit engine, limited Loan to value, etc. which have led to improvement in the asset quality of the company. MFL adopted IND AS from April 1, 2018, and there was not much impact on the asset quality on transition. The gross stage III assets and net stage III assets reduced significantly from Rs.1,263 crore and Rs.625 crore respectively as on March 31, 2018 to Rs.747 crore and Rs.472 crore respectively as on March 31, 2019. The improvement in gross stage III assets was due to the combined effect of improvement in asset quality and write-offs made during the year. Consequently, with decrease in absolute Gross stage III & Net Stage III assets and increase in loan portfolio outstanding, the Gross Stage III Assets and Net Stage III Assets as a percentage of advances improved significantly from 8.65% and 4.47% respectively as on March 31, 2018 to 4.79% and 3.08% respectively as on March 31, 2019. Net NPA to networth also witnessed notable improvement from 32.41% as on March 31, 2018 to 17.47% as on March 31, 2019. The stage III provision coverage was at 36.8% in FY19 (50.5% in FY18). Improvement in CAR MFL’s Tier I CAR improved significantly from 12.84% as on March 31, 2018 to 20.74% as on March 31, 2019 post infusion of


Press Release

equity capital of approximately Rs.500 crore through QIP in April’18 and relatively stable risk weighted assets. Tier II CAR remained relatively stable at 4.13% as on March 31, 2019 vis-a-vis 4.46% as on March 31, 2018. Consequently the overall CAR improved and stood at 24.87% as on March 31, 2019 vis-à-vis 17.30% as on March 31, 2018. The overall CAR of the company is well above the regulatory requirement of 15%. Higher CAR would aid the company to undertake additional business and also act as a mitigant against delinquencies and other credit risk associated with the business. Overall gearing also improved from 6.36x as on March 31, 2018 to 4.94x as on March 31, 2019 with increase in networth due to equity infusion and accruals of profit. Key Rating Weaknesses Moderate return indicators Though the profitability of the company increased during FY19, the return indicators continue to remain moderate. RONW remained stable at 13.13% in FY19 vis-à-vis 13.04% in FY18, whereas, Adjusted ROTA (including off-book assets) of the company witnessed marginal improvement from 1.28% in FY18 to 1.70% in FY19. RONW remained stable despite increase in net profits due to increased networth as on March 31, 2019 with equity infusion during FY19 and significant impact of deferred tax liability on PAT. Interest spread and Net Interest Margin also improved marginally from 5.45% and 6.34% respectively in FY18 to 6.04% and 6.77% in FY19. Moderate diversified resource profile The company has a moderately diversified resource profile in terms of both maturity and mix of bank and capital markets borrowings. Around 51% of MFL’s total borrowings as on March 31, 2019 (vis-à-vis 65% as on March 31, 2018) was in the form of cash credit/term loans (from banks). In terms of borrowings from debt capital markets, the major portion was from commercial paper which was about 14% as on March 31, 2019 (vis-à-vis ~5% as on March 31, 2018). Securitisation formed 26% of the borrowings and the balance were in the form of Secured/Unsecured/Perpetual NCDs. Further diversification of resource profile and reduced dependence on bank borrowings is a key rating sensitivity. Subdued scenario in NBFC sector Post September 2018, the NBFCs/HFCs have been facing liquidity crisis with reduced confidence from the investors and lenders. Improvement in the funding scenario with availability of funds at competitive rates to sustain growth in disbursements is critical from a credit perspective. Liquidity The liquidity position of MFL as per statutory ALM submitted to RBI reflects that liabilities maturing in upto one year bucket exceeds the corresponding assets as on March 31, 2019 and the company had cumulative deficit in the upto 1 year bucket. The cumulative deficit in the over 2 months to 3 months bucket is due to short term debt repayment in the period which, however, is supported and gets bridged by the undrawn committed bank lines. The deficit in the 6 months – 1 year time bucket is on considering repayment of cash credit in upto one year bucket. However, considering that working capital facilities from banks are renewed on a year to year basis and therefore are revolving in nature; the liquidity profile is comfortable. MFL had free cash of ~Rs.590 crore as on March 31, 2019 (fixed deposits/current account balances/cash in hand) and unutilized lines of credit of ~Rs.1,800 crore as of May’19. Further, the company has presence in the securitization market and the unencumbered securitizable loan assets stood at ~Rs.2,490 crore as on March 31, 2019. Analytical approach: CARE has taken a consolidated view of MFL, its wholly subsidiary Magma Housing Finance Ltd (MHFL) and joint venture companies Magma HDI General Insurance Company Ltd (MHDI) and Jaguar Advisory Services Private Ltd (to the extent of MFL’s shareholding i.e., 41% and 48.9%, respectively) considering the strong operational and financial linkages. Applicable Criteria CARE’s Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology: Factoring Linkages in Ratings Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings Rating Methodology- Non Banking Finance Companies (NBFCs) Financial ratios –Financial Sector

http://www.careratings.com/pdf/resources/CARE'sPolicyOnDefaultRecognition-30July2018.pdf

http://www.careratings.com/pdf/resources/CARE'sPolicyOnDefaultRecognition-30July2018.pdf

http://www.careratings.com/upload/NewsFiles/GetRated/ShortTermInstruments-06-Sept-2018.pdf

http://www.careratings.com/upload/NewsFiles/GetRated/ShortTermInstruments-06-Sept-2018.pdf

http://www.careratings.com/upload/NewsFiles/GetRated/RatingMethodology-FactoringLinkagesinRatings-Dec-18.pdf

http://www.careratings.com/pdf/resources/Rating_Outlook_and_credit_watch_May_2019.pdf

http://www.careratings.com/upload/NewsFiles/GetRated/RatingMethodology-NBFCs-Dec2018.pdf

http://www.careratings.com/upload/NewsFiles/GetRated/RatingMethodology-NBFCs-Dec2018.pdf

http://www.careratings.com/pdf/resources/Ratios%20-%20Financial%20Sector.pdf

http://www.careratings.com/pdf/resources/Ratios%20-%20Financial%20Sector.pdf


Press Release

About the Company Incorporated in 1978, MFL is a RBI registered NBFC and is classified as a ‘Non-Deposit taking Systemically Important Asset Financing Company’ by RBI. The current promoters of MFL are Mr. Mayank Poddar (Chairman Emeritus) and Mr. Sanjay Chamria (Vice-Chairman and MD). Mr. Narayan Seshadri – working as Non-Promoter Director on the board of MFL (formerly associated with Arthur Anderson and KPMG) is the Chairman. MFL is engaged in financing of utility vehicles/cars, used asset, CV, SME loans, CE and tractors. The group also operates a mortgage business separately through its wholly owned subsidiary, MHFL (erstwhile Magma Housing Finance Company) since Feb 2013. The group also has a presence in general insurance business in partnership with HDI through MHDI since October’2012.

Consolidated Brief Financials (Rs. crore) FY18 (A) FY19 (A)

Total income 2,329.74 2,514.05

PAT 236.89 304.01

Interest coverage (times) 1.30 1.44

Total Assets 15,863.27 17,304.79

Net NPA (%) 4.47 3.08

ROTA (%) 1.49 1.83

A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the

Issue Rating assigned along with

Rating Outlook Instrument Issuance Rate Date (Rs. crore)

Fund-based - LT-Cash Credit - - - 5067.00 CARE AA-; Stable

Term Loan-Long Term - - Sep-21 405.00 CARE AA-; Stable

Non-fund-based - LT/ ST-BG/LC - - - 349.58 CARE AA-; Stable/CARE

A1+

Secured NCDs 07-01-2017 9.55% 07-01-2022 5.00 CARE AA-; Stable



Proposed Secured NCDs - - - 82.10 CARE AA-; Stable

Unsecured Subordinated Tier II NCD

- - - 0.00 Withdrawn






30-06-2014 11.45% 30-06-2021 0.50 CARE AA-; Stable


19-03-2013 11.00% 19-03-2020 3.00 CARE AA-; Stable


06-09-2012 11.50% 06-09-2022 10.00 CARE AA-; Stable


06-09-2012 11.50% 06-09-2022 10.00 CARE AA-; Stable


06-09-2012 11.50% 06-09-2022 5.00 CARE AA-; Stable


17-01-2013 11.00% 17-01-2023 10.00 CARE AA-; Stable

Unsecured Subordinated Tier II 17-01-2013 11.00% 17-01-2020 15.00 CARE AA-; Stable


Press Release

NCD


23-04-2013 10.70% 21-04-2023 48.00 CARE AA-; Stable


11-03-2013 11.00% 11-03-2020 10.00 CARE AA-; Stable


11-03-2013 11.00% 11-03-2020 15.00 CARE AA-; Stable


11-03-2013 11.00% 11-03-2020 20.00 CARE AA-; Stable


11-03-2013 11.00% 11-03-2020 10.00 CARE AA-; Stable


19-03-2013 11.00% 19-03-2020 50.00 CARE AA-; Stable


19-03-2013 11.00% 19-03-2020 7.00 CARE AA-; Stable


26-09-2013 10.90% 26-09-2023 14.00 CARE AA-; Stable


28-03-2014 11.00% 28-04-2021 10.00 CARE AA-; Stable


28-03-2014 11.00% 28-04-2021 5.00 CARE AA-; Stable


30-06-2014 11.45% 30-06-2021 71.00 CARE AA-; Stable


30-06-2014 11.45% 30-06-2021 140.00 CARE AA-; Stable


30-06-2014 11.45% 30-06-2021 3.50 CARE AA-; Stable

Proposed Unsecured Subordinated Tier II debt

- - - 100.00 CARE AA-; Stable

Debt-Perpetual Debt 24-03-2010 13.50% - 10.00 CARE A+; Stable












Proposed Debt-Perpetual Debt - - - 63.60 CARE A+; Stable

Commercial Paper (Standalone) - - 7 - 364 days 1750.00 CARE A1+

Commercial Paper (Carved out) - - 7 - 364 days 1250.00 CARE A1+


Press Release

Annexure-2: Rating History of last three years

Sr. No.

Name of the Instrument/Bank

Facilities

Current Ratings Rating history

Type

Amount Outstanding (Rs. crore)

Rating

Date(s) & Rating(s)

assigned in 2019-2020

Date(s) & Rating(s)


Date(s) & Rating(s)


Date(s) & Rating(s)


1. Secured NCDs - - - - - - -

2. Unsecured Subordinated Tier II NCD

LT - - - - - 1)Withdrawn (26-Apr-16)

3. Debt-Perpetual Debt LT 40.00 CARE A+; Stable

- 1)CARE A+; Stable (11-Jul-18)

1)CARE A+; Stable (26-Mar-18) 2)CARE A+; Negative (14-Jul-17)

1)CARE A+; Negative (10-Mar-17) 2)CARE A+; Stable (20-Jan-17) 3)CARE A+ (12-Jul-16)

4. Commercial Paper-Commercial Paper (Standalone)

ST 1750.00 CARE A1+

- 1)CARE A1+ (11-Jul-18) 2)CARE A1+ (06-Jul-18)

1)CARE A1+ (31-Oct-17) 2)CARE A1+ (14-Jul-17)

1)CARE A1+ (10-Mar-17) 2)CARE A1+ (20-Jan-17) 3)CARE A1+ (12-Jul-16) 4)CARE A1+ (26-Apr-16)


LT 0.50 CARE AA-; Stable

- 1)CARE AA-; Stable (11-Jul-18)

1)CARE AA-; Stable (26-Mar-18) 2)CARE AA-; Negative (14-Jul-17)

1)CARE AA-; Negative (10-Mar-17) 2)CARE AA-; Stable (20-Jan-17) 3)CARE AA- (12-Jul-16)


LT - - - 1)CARE AA-; Stable (11-Jul-18)



7. Secured NCDs - - - - - - -






LT - - - - 1)Withdrawn (26-Mar-18) 2)CARE AA-; Negative (14-Jul-17)



Press Release





11. Fund-based - LT-Cash Credit





12. Term Loan-Long Term LT 405.00 CARE AA-; Stable




13. Non-fund-based - LT/ ST-BG/LC

LT/ST 349.58 CARE AA-; Stable / CARE A1+

- 1)CARE AA-; Stable / CARE A1+ (11-Jul-18)

1)CARE AA-; Stable / CARE A1+ (26-Mar-18) 2)CARE AA-; Negative / CARE A1+ (14-Jul-17)

1)CARE AA-; Negative / CARE A1+ (10-Mar-17) 2)CARE AA-; Stable / CARE A1+ (20-Jan-17) 3)CARE AA- / CARE A1+ (12-Jul-16)

14. Commercial Paper-Commercial Paper (Carved out)

ST 1250.00 CARE A1+

- 1)CARE A1+ (11-Jul-18)

1)CARE A1+ (31-Oct-17) 2)CARE A1+ (14-Jul-17)

1)CARE A1+ (10-Mar-17) 2)CARE A1+ (20-Jan-17) 3)CARE A1+ (12-Jul-16) 4)CARE A1+ (26-Apr-16)


LT - - - - - 1)Withdrawn (26-Apr-16)


LT 0.00 Withdrawn; Stable

- - - 1)Withdrawn; Stable (20-Jan-17) 2)CARE AA- (12-Jul-16)

17. Secured NCDs LT 0.00 Withdrawn; Stable

- - - 1)Withdrawn; Stable (20-Jan-17) 2)CARE AA- (12-Jul-16)




1)CARE AA-; Stable (26-Mar-18) 2)CARE AA-;

1)CARE AA-; Negative (10-Mar-17) 2)CARE AA-;


Press Release

Negative (14-Jul-17)

Stable (20-Jan-17) 3)CARE AA- (12-Jul-16)

19. Term Loan-Long Term LT - - - - 1)Withdrawn (14-Jul-17)


20. Secured NCDs LT - - - - - 1)Withdrawn (26-Apr-16)

21. Secured NCDs LT - - - - 1)Withdrawn (14-Jul-17)







23. Secured NCDs LT - - - - - 1)Withdrawn (20-Jan-17) 2)CARE AA- (12-Jul-16)

24. Preference Shares-Reedemable

LT - - - - - 1)Withdrawn (12-Jul-16)














1)CARE AA-; Negative (10-Mar-17) 2)CARE AA-; Stable (20-Jan-17) 3)CARE AA-


Press Release

(12-Jul-16)

28. Secured NCDs LT - - - - 1)Withdrawn (26-Mar-18) 2)CARE AA-; Negative (14-Jul-17)












LT - - - - - 1)Withdrawn (12-Jul-16)

32. Secured NCDs LT 30.90 CARE AA-; Stable














LT - - - - - 1)Withdrawn (26-Apr-16)





1)CARE AA-; Negative (10-Mar-17) 2)CARE AA-; Stable (20-Jan-17)


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3)CARE AA- (12-Jul-16)






38. Secured NCDs LT - - - - - 1)Withdrawn (26-Apr-16)





















44. Secured NCDs LT - - - - - 1)Withdrawn (12-Jul-16)


LT - - - 1)CARE AA-; Stable (11-Jul-18)

1)CARE AA-; Stable (26-Mar-18) 2)CARE AA-;

1)CARE AA-; Negative (10-Mar-17) 2)CARE AA-;


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Negative (14-Jul-17)

Stable (20-Jan-17) 3)CARE AA- (12-Jul-16)



47. Secured NCDs LT - - - - 1)Withdrawn (26-Mar-18) 2)CARE AA-; Negative (14-Jul-17)












-




-




-

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.


Press Release

Contact us Media Contact Mradul Mishra Contact no.: +91-22-6837 4424 Email ID: [email protected]

Analyst Contact Name: Ms Mamta Muklania

Contact no.: 033-4018 1651/98304 07120

Email ID: [email protected]

Business Development Contact Name: Mr. Lalit Sikaria Contact no.: 033-40181607 Email ID: [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.

**For detailed Rationale Report and subscription information, please contact us at www.careratings.com

http://www.careratings.com/

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