"Buy" This NBFC Stock For 20% Upside Potential

Broking firm, Emkay Global believes that Magma Fincorp is on solid path of profitable growth; and has resumed coverage with a "Buy" target on the stock. The firm has set a target price of Rs 175 on the stock and has recommended to buy the shares.

According to the brokerage firm Magma Fincorp reported a loss of Rs 6.5 billion in Q4 after taking a one-time write-off of Rs 2.7 billion and management overlay provision of Rs 6.2 billion (factoring in the second Covid wave). The company introduced 100% provisions and wrote off all accounts in the 90+ DPD in SME lending, 180+ DPD in Vehicle Finance and 730+ DPD bucket in Housing.

"In our view, after recent fund infusion and current quarter clean-up, Magma is well-placed on adequacy, promoter back-up and liquidity fronts. We are building in 30% AUM CAGR for FY21-24 Estimated, backed by product diversity. With ease in cost of funds, we expect margin expansion to 875bps by FY23E from 800bps in FY21," the brokerage firm has said.

The company has already announced a change in management, under which Vijay Deshwal, Business head at ICICI Bank, will join as CEO from July'21.

"We believe the company is well-placed to attract new talent from across industries which would be the biggest trigger for overall growth.

With change in guard, we do believe Magma 2.0 would be a journey of superior profitable growth, resulting in significant improvement in return ratios. We are resuming coverage of Magma Fincorp with Buy rating and target price of Rs 175, corresponding to 2.1x P/ABV FY23E with RoE of 10.8% and RoA of 3.4%," the brokerage firm has said.

The shares of Magma Fincorp were last seen trading at Rs 150.25 on the NSE.