Magma Fincorp is looking to raise capital to the tune of ₹400-500 crore for its wholly-owned subsidiary – Magma Housing Finance Ltd (MHFL). Plans are afoot to rope in a strategic partner to infuse funds into the business, which has been growing at a CAGR of over 30 per cent for the last 2-3years.

According to Kailash Baheti, CFO, Magma Fincorp, housing finance portfolio has been doing well and the company would like to grow the business further. MHFL’s asset under management (AUM) stood at ₹3,554 crore as of Q2 FY21.

“The housing finance book has been growing at a CAGR of over 30 per cent for the last two years, and this year also we are expecting the book to grow, may not be at 30 per cent but around 15-20 per cent. The portfolio is doing well, so this is one business where we want to grow. We are in the process of raising capital and are looking for a strategic partner,” Baheti told BusinessLine .

Magma Fincorp has appointed investment bankers, and is hopeful of completing the fund-raising process in the next six months.

The parent company’s (Magma Fincorp) stake in the subsidiary might come down once a strategic partner comes in.

“We are open to hiving-off the subsidiary into a separate company. We will decide on that once when we have an investor on board, but clearly our priority is to bring capital into the housing finance business,” he said.

MHFL’s customer base primarily includes new-to-credit customers who are buying their first home. Over 70 per cent of the loans are disbursed to customers in Tier II and Tier III towns, and the average ticket size of loan is around ₹9-13 lakh, the company said.

Disbursals under affordable housing finance have come close to 87 per cent of pre-Covid levels.

Capital raising for insurance arm

Magma Fincorp, which holds a 36.43 per cent stake in Magma HDI General Insurance Company Ltd, is looking to unlock value in the insurance venture through a partial stake sale.

“We are in the process of raising capital and are looking at private equity or roping in a strategic investor for raising close to ₹200-500 crore. The process is in fairly advanced stage and is likely to be completed in the next 3-4 months,” he said.

Magma HDI had a gross written premium of ₹1,294 crore in FY20. The gross written premium is likely to increase to ₹3,000 crore post capital infusion in the next two years.

Magma Fincorp’s strategic focus would continue to be on retail and SME segments. The company has stopped sourcing low RoA (return on asset) products such as new cars, commercial vehicles and commercial equipment, and will sharpen the focus on products such as used assets, tractors that have a higher return on asset.