Shares of Magma Fincorp were locked at 10 percent upper circuit in early trade on Thursday after the announcement that Rising Sun Holdings Private Limited (RSHPL) will buy a majority stake in the company. The stock price hit 52-week high of Rs 93.40 apiece on the BSE.

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Magma Fincorp said its board approved and executed binding terms of an agreement between Rising Sun Holdings, and Mayank Poddar and Sanjay Chamria whereby the Adar Poonawalla-led Rising Sun Holdings Private Limited will acquire 60 percent stake in the company through a preferential allotment.

RSHPL will acquire 45.80 crore shares of Magma Fincorp at Rs 70 per share, investing a total of Rs 3,206 crores for its 60 percent stake.

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Adar Poonawala firm Rising Sun to buy controlling stake in Magma Fincorp

As part of the transaction, Magma Fincorp proposes to allot 45.80 crore shares to Rising Sun Holdings, and a total of 3.57 crore shares to Sanjay Chamria and Mayank Poddar. Post the transaction, Rising Sun Holdings will have 60 percent stake in the company, and Sanjay Chamria and Mayank Poddar 2.34 percent each, it said.

Following the preferential issue, Rising Sun Holdings would be classified as the promoter of Magma Fincorp.

Once the acquisition is complete, Magma Fincorp and its subsidiaries are also proposed to be renamed and rebranded under the brand name “Poonawalla Finance”, and the existing financial services business of Poonawalla Finance is proposed to be consolidated into Magma Fincorp.

Speaking to CNBC-TV18, Sanjay Chamria, MD, Magma Fincorp said that the capital adequacy of the company will improve to 68 percent after the infusion of Rs 3,450 crore which will come in at one-go.

On Magma Fincorp, ICICI Securities said that the deal bodes well for an otherwise niche franchise that has been in transition for several years.

"Business reorganisation and consolidation phases have depressed the stock’s valuation for long. We expect the new promoter group and management to leverage the niche positioning of Magma’s product, geography and customer franchise to improve the group’s market positioning and capitalise on upcoming opportunities," ICICI Securities said.

We assign high probability of superior operating metrics and return profile in the medium term drawing comfort from strong corporate group backing, >68% CAR (post infusion), improved credit rating outlook, operational synergies and business competitiveness, it added.

Emkay Global is of the view that this transaction would strengthen Magma’s overall capital position and would allow the company to realign its business as desired.

The brokerage house remains concerned about the company’s overall asset quality profile, considering elevated credit costs around 350 bps during Q3FY21 as well as proposed restructured book of 5-6 percent of AUM.

"We await more clarity regarding the future business strategy of the new promoter group and their preferred areas of growth. Poonawalla Finance is already engaged in personal and business loans. We await clarity over the new business avenues as well. We are keeping the stock under review for now and would update our numbers after a detailed discussion with management," Emkay Global said.

ICICI Securities maintained a Buy rating on the stock and raised the target price to Rs 125 per share from Rs 95 earlier.

At 9:50 am, the shares of Magma Fincorp were locked at 10 percent upper circuit at Rs 93.40 on the BSE.

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First Published:Feb 11, 2021 10:04 AM IST