Current 2018 (History) 2017 2016 2015 Start of 2015

Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
Commercial
ST 3000.00 CRISIL A1+ 27-10-17 CRISIL A1+ -- -- --
Paper
Short Term
ST 21-09-17 CRISIL A1+ 28-12-16 CRISIL A1+ 02-12-15 CRISIL A1+ CRISIL A1+
Debt
Annexure - Rating History for last 3 Years Magma Fincorp

Rating Action

Rs.3000 Crore Commercial Paper (Enhanced From Rs.2000

CRISIL A1+ (Reaffirmed)
Crore)

1 crore = 10 million

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper of Magma Fincorp Ltd (Magma Fincorp; part of the
Magma group).

The rating continues to reflect the Magma group's diversified business profile with presence across the gamut of retail
financing asset classes, adequate capitalisation, and experienced and competent management team. These strengths are
partially offset by average, albeit improving, asset quality and profitability.

Analytical Approach

CRISIL has combined the business and financial risk profiles of Magma Fincorp and Magma Housing Finance Ltd (Magma
Housing; 'CRISIL A1+'). The companies, together referred to as the Magma group, have a common senior management
team and integrated operations, and are both strategically important for business growth.

Key Rating Drivers & Detailed Description

Strengths
* Diversified business profile with presence across the gamut of retail financing asset classes
The group is among the established asset financing non-banking financial companies (NBFCs) with a sizeable presence in
rural and semi-urban areas and a track record of over 25 years. It has a competitive market position with loan assets under
management (AUM) of Rs 15,555 crore as on March 31, 2018. Its portfolio is diversified across product segments. It has a
significant presence in the passenger car and utility vehicle finance segment (32% of AUM as on March 31, 2018), where it
mainly caters to the self-employed and commercial-operator segments. It also provides construction equipment (9%) and
commercial vehicle (8%) finance to small entrepreneurs and small road transport operators, a significant proportion of
whom are first-time buyers. The group also has a considerable presence in tractor financing (18%) and has diversified into
mortgage financing (17%), small and medium enterprise (SME) financing (13%), and used commercial vehicles financing.
Though growth slowed in the past few years due to continued macroeconomic challenges, it is expected to revive from
fiscal 2019 and loan AUM is likely to reach Rs 18,000 crore by March 2019. Higher yielding segments such as pre-owned
vehicles, light commercial vehicles, SMEs, and affordable housing are expected to drive the growth in loan AUM over the
next few years. The group is likely to benefit from its diversified product suite and large presence in rural and semi-urban
areas and maintain its competitive market position over the medium term.

* Adequate capitalisation
Capitalisation is adequate with a adjusted networth of Rs 2093 crore as on March 31, 2018 (Rs 1919 crore as on March 31,
2017) against loan AUM of Rs 15,555 crore (Rs 16,101 crore). Tier-I and overall capital adequacy ratios (CARs) were
moderate at 17.3% and 20.7%, respectively, as on March 31, 2018 (15.4% and 20.4%, respectively, as on March 31, 2017).
CRISIL, in its analysis of capitalisation, factors in the total outside liabilities, including the extent of off-balance-sheet
assigned or securitised loans, in addition to on-balance-sheet liabilities. External liabilities (including principal outstanding
on off-balance-sheet securitisation and assignment transactions) declined to 6.4 times the networth as on March 31, 2018,
from 7.4 times a year earlier. Magma Housing's networth, Tier-I, and overall CAR were adequate at Rs 288 crore, 28.3%,
and 28.8%, respectively, as on March 31, 2018 (Rs 268 crore, 22.6%, and 23.2%, respectively, as on March 31, 2017). The
group strengthened its capital position by raising equity of Rs 500 crore in the first quarter of fiscal 2019 to support growth
plans. Capital position is expected to remain adequate over the medium term.

* Experienced and competent management team

The group is making significant investments in people, infrastructure, systems, and processes to support growth plans and
has hired experienced professionals to head the asset-backed financing and mortgage financing businesses. Senior
management personnel have been in the industry for more than a decade, and have extensive experience in their
functional areas.

Weakness
* Average, albeit improving, asset quality
Gross non-performing assets (NPAs) stood at 7.0% as on March 31, 2018, against a comparable number of 8.8% as on
March 31, 2017. The improvement in asset quality was driven by change in business model. The branch team is
responsible for both origination and collection up to 60 days past due in the asset financing business. Sale of distressed
assets to asset reconstruction companies (ARCs) at the end of fiscal 2017, along with favourable monsoon, resulted in
higher recovery from loans overdue by more than 60 days. Delinquencies in SME and mortgage financing businesses
remained stable through fiscal 2018. Asset quality should improve over the medium term, considering the better
performance of loans originated under the revised business model. Asset quality in the SME and mortgage financing
businesses, nevertheless, remains a monitorable, given the low seasoning of these loans.

* Modest, albeit rising, earnings

Return on managed assets (RoMA1), at 1.3% for fiscal 2018, was lower than the industry average of 1.8%. However, it has
improved significantly from 0.9-1.0% in the past few years, driven by an increase in net interest margin following an
increase in proportion of high yielding assets and reduction in slippages to NPAs. Credit cost has reduced considerably
following a reduction in gross NPAs. Operating expense as a percentage of loan AUM, however, increased on account of
additional investments in people, processes, and infrastructure for growth and marginal reduction in loan AUM.
Profitability is expected to improve over the medium term with increase in revenue and better operating efficiency. Ability
to improve profitability to the industry average level by maintaining net interest margin at the current level and keeping
credit cost under control remains critical and is a key rating monitorable.