ENAM has initiated coverage on Magma Fincorp with a BUY rating and the following note,
Magma Fincorp Ltd (MFL) is a Kolkata based non-banking financing company (NBFC). It provides financing of CV, construction equipment, cars, utility vehicles, tractors, SME loans and insurance distribution. It has a pan-India presence with 157 branches across 20 states and 1 union territory with an employee base of ~4700. It mainly targets rural and semi-urban markets and has a niche in financing first time buyers and small entrepreneurs.
Buoyant demand from user industry: The expected growth in construction equipment and vehicle financing (which account for major chunk of its business) should augur well for Magma. We expect higher than industry growth for the company.
Playing the rural theme:
Filling the void between a bank and a money-lender:
Asset quality to be stable, though we feel the trough has been crossed:
Entry into General Insurance sphere: Magma has entered in a JV with HDI Gerling of Germany, which is likely to add value by leveraging its existing client base and network.
At the CMP of Rs 335, it is currently trading at 6.5x PER and 1.5x PB FY2012E. We feel that the company’s valuation should be re-rated, from its
historic P/B multiple of 1.7x. Hence we recommend a BUY with a price target of Rs 452, which implies a FY12E P/Adj BV of 2x.
