Magma Fincorp maiden NCD issue review (Apply)

MFL is tapping debt market for the first time in last 31 years.
Offers lucrative rates to attract retail investors in maiden offer.
Issue is rated BWR AA/Stable and ACUITE AA/Stable.
Investors looking for regular income may consider it for long term.

About Company:

Magma Fincorp Ltd. (MFL) is a non-banking finance company, incorporated on December 18, 1978 as ARM Group Enterprises Private Limited. Subsequently, Company was converted into a public limited company in 1980 and the name of the Company was subsequently changed to Magma Leasing Limited in 1993. In 2008, Company name was changed to Magma Fincorp Limited. It commenced financing business in 1989, and has almost three decades of experience in such business.

MFL is engaged in providing asset backed financing for new and pre-owned auto and utility vehicles, tractors, cars and commercial vehicles, mortgage financing, financing to SMEs and distribution of general insurance products. Its customers include first-time buyers of vehicles, self-employed and non-professional individuals, small and medium entrepreneurs and customers with informal income and limited banking and credit history. As of September 30, 2018, MFL had around 11.00 lakh active customers, of whom approximately 5 lakh active customers were in financing businesses and 6 lakh active customers in insurance business. The company has a widespread branch network that forms an integral part of ability to service customers. As of December 31, 2018, it had a presence across 21 States in India through 309 branches with 1.1 million customers.

As on 31.03.18, the total AUM of MFL was Rs 15555 cr. and total debt was Rs 9770 cr.

Debt Offer Details:

For the purpose of onward lending and repayment of interest and principal of existing loans (75% of fund mobilized) as well as general corpus fund need (25% of fund mobilized), MFL is coming out with its maiden debt offer of Secured and Unsecured Redeemable Non-Convertible Debentures of Rs 1000 each for Rs. 200 crore with a green shoe option to retain oversubscription to the tune of Rs 300 crore making the total issue size of Rs 500 crore (against shelf limit of Rs 1000 cr.) under Tranche-I. Issue opens for subscription on 08.04.19 and will close on or before 08.05.19. Minimum application is to be made for 10 NCDs (i.e. Rs 10000) and in multiple of 1 NCD (i.e. Rs 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE and NSE.

This issue is rated as BWR AA/Stable by Brickworks Rating India Pvt. Ltd. and ACUITE AA/Stable by Acuite Ratings and Research Ltd. This rating indicates that instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.

Issue is jointly lead managed by Edelweiss Financial Services Ltd. and A K Capital Services Ltd. and Karvy Fintech Pvt. Ltd. is the registrar to the issue. Catalyst Trusteeship Ltd. is the debenture trustee. Allotment will be done on 'First come – First Served' basis.

These NCDs have tenures of 3, 5 and 10 years. It offers coupon rates ranging from 10.04% to 10.75% based on selection of investors. Frequency of interest payments will be Monthly, Annually or cumulative as per the choice of investors. Allotment of these NCDs will be in dematerialized mode only. Application is to be made through ASBA mode only.

The terms of each series of NCDs, offered under Tranche I Issue are set out below:

Magma Fincorp NCD Terms

Series	I	II	III	IV	V	VI	VII
Frequency of Interest Payment	Annual	NA	Monthly	Annual	NA	Monthly	Annual
Tenor	3 year	3 year	5 year	5 year	5 year	10 year	10 year
Coupon (%) for all investor categories*	10.25%	NA	10.04%	10.50%	NA	10.27%	10.75%
Effective Yield (per annum)(Approx.) for all investor categories*	10.24%	10.24%	10.50%	10.49%	10.50%	10.76%	10.74%
Redemption amount(Rs per NCD)	Rs 1,000	Rs 1,340.10	Rs 1,000	Rs 1,000	Rs 1,648.19	Rs 1,000	Rs 1,000
Put and call option	NA
Redemption Date (Years from the Deemed Date of Allotment)	3 years	3 years	5 years	5 years	5 years	10 years	10 years
Minimum Application	Rs 10,000 (10 NCDs) across all Series collectively
In multiple of thereafter	Rs 1,000 (1 NCD)
Face Value/Issue Price(Rs /NCD)	Rs 1,000
Mode of Interest Payment	Through various options available

*The Company would allot the Series I NCDs, as specified in the Tranche I Prospectus to all valid Applications, wherein the Applicants have not indicated their choice of the relevant Series of NCDs.

Financial Data:

For last three fiscals, MFL has (on restated consolidated basis) posted total revenue/net profits of Rs 2506.33 cr. / Rs 213.48 cr. (FY16), Rs 2405.31 cr. / Rs 12.73 cr. (FY17) and Rs 2298.59 cr. / Rs 230.42 cr. (FY18). Thus while top line has shown declining trends, net profits witnessed roller coaster ride. According to offer documents, it had written off Rs 606.86 cr. worth bad debts for FY17 against around Rs 375 cr. for FY16 and FY18. Its net NPAs have seen sliding pattern from 6.4% in FY16 to 5.6% for FY17 and 5.2% for FY18.

As of 31.12.18, MFL's total AUM stood at Rs 16507 cr. with a capital adequacy of 22.6% and net NPA of 4.0%. Post issue its current debt equity ratio of 4.49 (as on 30.09.18) will stand enhanced to 4.91. As on 30.09.18 against paid up equity capital of Rs 53.86 cr. MFL has 2526 cr. plus free reserves.

Conclusion / Investment Strategy

Considering AA/Stable rating, higher coupon rates offered by MFL make it a lucrative bet for regular income. Investors looking for steady return may consider investment for long term. (Subscribe).

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on April 4, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

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