Hold Magma Fincorp; target of Rs 22: ICICI Securities

ICICI Securities research report on Magma Fincorp

Magma Fincorp (Magma) reported a Q4FY20 loss of Rs355mn led by lower NII and higher effective tax rate. Magma ranks below its peers on many parameters – franchise strength, liquidity position, asset resilience, earnings/return stability and cost efficiency. This was evident from a relatively higher proportion of its AUM under moratorium. Moratorium in the vehicle finance, affordable housing (AHF) and SME book stood at 84%, 53% and 56% respectively. On the consolidated book, customers availing moratorium (by value) for April was ~64% and for May it was ~73% - suggesting that the moratorium was up MoM but the company is making earnest efforts to bring it down.

Outlook

High risk unsecured lending in its SME book (even though ~76% of this book is secured under CGT-MSE) and LAP (within AHF business) could mean asset quality would further deteriorate with consequent higher credit costs in FY21. Maintain HOLD.

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