In an interaction with Mamta Maity, indiainfoline.com, Deepak Patkar, CEO - Asset Finance, Magma Fincorp said, “owing to the change in the company’s ALM strategy in Q2, Magma had a comfortable liquidity position ending Q3 and has strong visibility for new funding lines to meet our additional business requirements.”
Tell us how was the company's performance in Q3FY20?
Magma Fincorp’s disbursals are back on track in Q3, after having briefly decelerated business in Q2 owing to the change in the company’s ALM strategy. There has been a persistent slowdown in the sales of vehicles and a drop in load utilization by the customers, resulting in tightened cash flows. Thus we have pivoted the fresh disbursals towards used assets, affordable housing finance and SME loans and focused our business on existing customers. Disbursement contribution of focus products increased to 81% from 59% in the same period last year and the focused products AUM grew by 19% yoy. The asset-backed finance (ABF) business is consistent with the product strategy to focus on used assets, disbursements of used assets grew by 36% CAGR over the last three years.
The vehicle loan market is marginally showing signs of stress, largely on account of the commercial vehicles segment which has been significantly affected by the slowdown in the economy. Fresh NPA creation for the company significantly reduced as the quarter progressed.
Owing to the change in the company’s ALM strategy in Q2, Magma had a comfortable liquidity position ending Q3 and have strong visibility for new funding lines to meet our additional business requirements.
What is your segment-wise revenue contribution?
Financing of passenger vehicles contributes 45% of our revenues. This is followed by CVs at 24% and Tractor at 19%.
What is your outlook on margins going forward for the coming quarters?
Magma has taken prudent measures to change the disbursement mix, tilting more towards better yielding products has helped us to strengthen our NIMs. We shall continue to pursue our growth strategy in our focus products, to improve our overall book yields. NIMs are expected to further improve in FY21 with a decline in an incremental cost of funds.
Do you have plans to increase the number of branch locations?
Magma has an adequate presence in 21 States/UTs with a branch network of 326 branches. Through our hub and spoke model and presence of field executives at the taluka level we have engaged actively with our customers. Our current focus is to improve the operating efficiency and profitability, along with investments in technology which will drive future growth.
Tell us your overall outlook for the industry and economy?
The economy is poised for a rebound in FY21. The deceleration in economic growth with the GDP growth for 2019-20 projected at 5 per cent, should be understood within the framework of a slowing cycle of growth. The IMF has slashed its estimate on India’s 2019 economic growth to 4.8% from the 6.1% expansion it projected in the third quarter, citing a sharper-than-expected slowdown in local demand and stress in the non-bank financial sector. With an improvement in macro conditions in FY21, the ripple effect will be felt on the backbone of the economy in the BFSI sector.
Lastly, the Indian and global markets bleed due to Coronavirus, what is your view on the financial sector?
The coronavirus is expected to have an impact on the Indian automotive industry and hence also on the automobile component and forging industries, who had already reduced their production rate due to the market conditions and on account of the impending change over to BS-VI emission norms from BS-IV from the of April 1, 2020. Amidst this uncertainty, the OEMs are unable to plan production beyond the inventory as currently available to them.
Slowing global growth would contribute to the stress on the Indian corporate balance sheet and thereby on the BFSI sector. Slowing domestic credit growth is yet another challenge thereby prompting banks to focus on credit offtake, which has dropped to 7% in recent months.