Moneycontrol Bureau
Ambit has reiterated buy rating on Magma Fincorp as it feels the non-banking finance company is a turnaround story and expects improvement in return on equity (RoE) & return on assets (RoA).
After having a recent management interview, the brokerage says it expects Magma's RoE to improve to 14 percent by FY18 driven by ongoing restructuring improving operational efficiencies, declining funding cost, and under-control asset quality.
Improving RoA trends added to its conviction, it says. In October 2015-March 2016 period, RoA increased by 26 basis points YoY.
According to its research note, continued RoA and ROE improvement over FY17/18 should drive a rerating.
The brokerage says its recent interaction with Magma’s management indicates that barring tractor loans, asset quality stress has peaked for Magma which is visible in improving trends in early delinquencies.
The management also upgraded loan growth guidance to around 12 percent YoY for FY17 (against a flattish guidance earlier) driven by improved employee productivity, Ambit says.
Moreover, despite around 30 basis points improvement in operating costs in FY16, the management believes that there is still more scope left for improvement in this ratio driven by increased direct sourcing of loans (40 percent of originations by March 2017 against 25 percent right now), the brokerage says.
Posted by Sunil Shankar Matkar
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