Magma Fincorp Ltd is planning to enter the general insurance business and has bought stake in a credit information company, Experian. Sanjay Charmia, VC and MD and Dhirendra Kumar Hota, AVP and head for MIS budgeting, speak to Moneylife’s Aaron Rodrigues about the company’s plans
Aaron Rodrigues (ML): What are the prospects and outlook for the company, going forward?
Magma Fincorp (MF): We hope to benefit from a gross domestic product (GDP) growth of 7%-8% which will mean a rise in demand for automobiles, tractors and construction equipment. We also expect to clock higher than industry growth. We expect higher revenues for high-yield products like used commercial vehicles, tractors and loans to small businesses. The general insurance joint venture with HDI Gerling will expand our product offerings. We plan to increase our presence and market share in the western and southern regions.
ML: The company’s net interest margin has grown to 5.1% from 3.6%. How much do you expect it to grow in the next quarter?
MF: We propose to at least maintain (the margin) at more than 5%. We have achieved 5.6% in the third quarter and we would like to maintain (the margin) at more than 5%, by using the contribution of high-yielding products which currently deliver around 13.5% gross margin.
ML: What are your plans in the western and southern regions where you have a low presence?
MF: We plan to increase our presence in the western and southern parts of the country. This year we are adding five branches and next year we propose to add 15 branches.
ML: Magma recently acquired a 7% stake in Experian Credit. How much was it valued at?
MF: We have picked up a 7% stake and this cost us Rs4.20 crore. Experian has an equity base of Rs60 crore. We plan to finance this acquisition through internal sources.
Moneylife (ML): When will your general insurance venture with HDI Gerling become operational?
Magma Fincorp (MF): We filed our first application with IRDA at the end of October. It is in an advanced stage and would be completed in a month or two. We shall then go to the second stage when IRDA will ask for our company’s detailed business plans and policies. Once that is over, the final approval is a mere formality. We expect operations to begin in June this year.
ML: Which business segment of general insurance will Magma focus on and why?
MF: We would be focusing on our captive business, retail health and the fire & engineering business. That’s because that can be an immediate start-up for our insurance business and then of course we can build up through doing independent businesses like building up relationships with dealers, manufacturers and direct customers among small & medium businesses and mid-size corporates.
The captive business is largely the auto sector. As we deal mainly with rural and semi-urban markets, we intend to capitalise on retail health, which is a profitable business, unlike group health. Every month, we have added 100 new clients in the SME loan segment, so we can give them insurance and then we can also look at non-captive business (which is an independent business not related to Magma).
ML: What kind of revenues or market share are you targeting?
MF: It’s quite premature to talk about it now. Once our operations begin—which would be in the first half of the next financial year—then we will be able to make our analysis and talk about it.
The market’s trading band has narrowed. It will not stay that way and will be resolved with a massive move. Will it be up or down?
The Sensex edged higher in early trading on Friday, tracking the rise in Asian stocks. However, it pared off early gains very soon and was mostly flat for the rest of the day. It closed at 17,554 points, 30 points lower than the previous day’s close.
The market’s trading band has narrowed down to an extreme. This usually presages a major move. We can’t say at this moment whether the market will end higher or lower, but a big move is certainly coming.
Through the day, it touched a high of 17,639 and a low of 17,529 points. The Nifty ended the day down 9 points. The bullish sentiment was subdued as inflation in December 2009 touched a one-year high, reinforcing fears that the RBI will be forced to tighten monetary policy. The wholesale price index rose 7.3% in December 2009 from a year earlier, its highest level since November 2008 and accelerating from a 4.8% gain in November 2009. This is largely because of a 20% rise in food prices following a weak monsoon and flooding in parts of the nation.
Reliance Communications gained 4.76% after it got a nod from the market regulator to launch an IPO for its telecom tower unit. Power Grid Corporation of India (up 1.11%) has received its board’s approval for the participation in a joint venture with Nepal Electricity Authority and IL&FS for a 400KV Indo-Nepal transmission project. Tata Consultancy Services (up 1.48%) rose ahead of its quarterly result. Some of the banks have announced their results today. Axis Bank (up 1.52%) posted a growth of 4% and 51% in total income and operating profit in the December quarter over the same period last year. HDFC Bank (up 0.61%) reported a declining income (down 10%). However its operating profit grew by 11% over the same period. IDBI Bank (up 0.72%) posted a growth of 26% and 64% in income and operating profit for the December quarter over the year-ago period.
In the US markets on Thursday, the Dow gained 29.78 points, the broader Standard & Poor's 500 index rose 2.78 points and the Nasdaq Composite Index was up 8.84 points.
HUL has lost Rs140 crore over the last six quarters in the water-purifier business and is facing tough competition from Tata’s water-purifier brand ‘Swach’
The water-purifier business is now a hot battlefield with the Tata group recently launching its ‘Tata Swach’. However, Hindustan Unilever Ltd (HUL), which also sells a non-electrical purifier ‘Pureit’ is going through a tough time. Over the past six quarters, HUL has lost about Rs140 crore in the water-purifier category, according to an industry report.
“Only a miniscule fraction of the population in India uses purifiers today. Pureit therefore sees its role as one of educating consumers, getting them to appreciate the benefits of safe water, and then adopting Pureit. In a sense, we see ourselves as helping build the water-purifier market in India. This task is very different from the task of competing with other brands for a share of an existing product market,” said an HUL company spokesperson.
The price of Tata’s purifier is likely to throw up a challenge for HUL. ‘Tata Swach’ has a price tag of Rs749-Rs999 and its filter system refill that costs Rs299, has a lifespan of 3,000 litres. On the other hand, HUL’s Pureit costs about Rs2,000 with a filter system lifespan of 1,500 litres. The Pureit filter system costs Rs350.