ICICI Securities: Magma Fincorp Playing It Safe; Mending The Balance Sheet
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ICICI Securities Report
Q1 FY21 was a quarter wherein Magma Fincorp Ltd. chose to play it safe. Reported disbursements plummeted 90% YoY despite improving collection efficiencies.
Over 60% of the Q1 disbursements were in affordable housing segment. Asset under management under moratorium declined to approximately 40% as at end-July and aggregate Covid-19 provisions stood at Rs 1.48 billion (approximately 93 basis points of AUM).
Magma Fincorp also rationalised its branch network, which makes us believe that some of the cost efficiencies delivered during the quarter are sustainable.
Various liquidity schemes (e.g. Targeted Long-Term Repo Operations, Partial Credit Guarantee Scheme 2.0, Special Liquidity Scheme) announced by the Reserve Bank of India and government have helped Magma raise fresh borrowings in FY21-TD.
We expect the company’s AUM to shrink in FY21 as it focuses on liquidity conservation and preservation of balance sheet. Asset quality could potentially deteriorate post moratorium with consequently high credit costs in the current fiscal.
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