Adar Poonawalla, CEO, Serum Institute of India, says wanted to scale up Poonawalla Finance which he started two years ago and Magma is a wellrun NBFC and is in all the financial businesses he wants to be in What is the rationale behind buying 60% stake in Magma Fincorp?I have always felt that the potential in India for the financial sector and the unmet needs of our people is so big that we definitely should be getting into this business. We started Poonawalla Finance two years ago. We want to scale up and have everything that Magma has — the general insurance, the housing finance business and of course the other sectors and territories that Magma has built over many years. Mr Chamria has done an excellent job and that is why we chose Magma. There are not many good well run NBFCs out there. This was the reasoning behind the deal. What kind of opportunity do you see in the financial space now?It is unlimited because the economy is going to grow in double digits and businesses and professionals and individuals need to fulfil their dreams. This is a huge growth potential we see over the next decade if not longer in India. There is a huge void. Certain other NBFCs went belly up and created the space for new entrants to come in. What is the scale of operation that you envision as things start running? How are things expected to move post this acquisition?At this moment, I cannot speak a lot on a listed company which still has to go through all the regulatory approvals for us to come in. We are also waiting for the shareholders’ nod. After that, we can get into it but generally speaking, I do not want to get into large ticket loans, real estate sector, corporates and all that going into crores of rupees. Magma is operating at a level of a few lakhs on an average up to Rs 50 lakh at the higher end. That is the space we want to be in as that is what Poonawalla Finance was also doing. That is where we feel we can manage our risk and serve the needs of the nation. In terms of growth targets, a growth of 20-25% a year would be a good place to start. The existing promoter, Mr Chamria, has always been very conservative and that is what we like. We want to be conservative but, scaling up and growing is also something that we want to do. We will talk about that once I am officially a shareholder and all the RBI and SEBI nods are taken. It is inappropriate for me to comment given my position right now. In the longer term, do you see this expanding across geographies within India? Do you see finance becoming quite a critical arm that you are intending to focus on?Absolutely. Our other businesses throw up cash and we need to deploy that in the right and appropriate manner, which is risk adjusted. It is still giving a good return and Magma Fincorp already has more than 290 branches and we want to build on that geographically and also to take care of the risk. I know there are certain areas which we might not expand on because they have traditionally had issues in this sector and so we are very careful on that. So, let us see what happens. In terms of the management, will it be professionally run or are there any major changes that you are looking at?I will be the Chairman and Mr Chamria will be the Vice Chairman. We are going to have Abhay as the MD and we will be probably getting a professional CEO. This will be a professionally run company. It is a listed entity. It is a space where I do not have 100% experience and expertise. So, I am going to let the professionals do their job. But I am going to look at managing the risk part. That has taken care of the areas and sectors that I feel comfortable being in. I will look at that. I trust the existing people. Mr Chamria has built this over the last 25 years. Of course, a new team will eventually come on board to grow the business in new areas and to come out with new products. I would just oversee all of that and probably be talking to you about earnings and targets and all of that in the subsequent months to come. You have touched upon how the outlook for NBFCs today is a lot brighter than it was a few months ago. Given that Magma’s performance in the past has been lagging its peers, share with us some insight in terms of what you feel about some of these legacy issues and generally about the NBFC space as well.. NBFCs have been taking too much risk in areas that they wanted to grow very aggressively in. Those sectors were stressed and then that stress came on to the NBFCs. Some of the NBFCs were mismanaged. We have to make sure that the asset liability mismatch issue is not there and focus on growth. At the same time, Mr Chamria has done a great job in being very conservative and has a reputation for running a great show. The earnings perhaps have not grown as aggressively because he has been conservative but that is just what I look for in a business and a partner. It is better to be a little more cautious and not lose money and grow slowly rather than jump into things and then an issues. The financial services business have been owned by many people. One can get into very dangerous and risky areas and things can very easily go wrong. We have seen that with so many NBFCs. So I am grateful for the lessons that these NBFCs have taught us. What we ought to do and what not to do has become very clear now thanks to those lessons. I do not know if we will still make some of our own mistakes along the way, but at least we now know certainly what areas and how to manage our loan book in a way that was not available five or six years ago. If I was to get into this business then, it would have been very different. Today there is so much more digitisation and everything is happening online, One need not do so many things that we had to do 10 years ago in NBFCs also. That also has attracted me to get into this space now. What segments of loans would you like to get into? Would it be more housing than infra? Would you be looking at newer segments as well?We will probably do a rejig. I cannot go into specifics because of the position I am in at this stage but we can talk about that later and we have got a whole plan that will be chalked out at that time. Of course, there will be certain segments which are a little riskier and have had issues and stress and we will probably stay away from those. In Poonawalla Finance, we have been growing very well. For example, in the professional loans and individual loans in the SME area. Maybe we will focus a little bit more on those areas but again I cannot go into too much detail right now. Is there an intent to merge Poonawalla Finance and Magma Fincorp?No, though that was the initial plan, but that would take six months in terms of a high court merger and other formalities. We felt this is a far quicker and straightforward route and as a joint application, I would be giving up the license to lend from Poonawalla Finance and that would cease to exist as a lending NBFC. The brand name would then go over to Magma and we will have either Poonawalla Financial Services or a renaming of some sorts with the Poonawalla brand on Magma. That is again subject to regulatory and RBI approvals. It will take three or four months but that is what is going to happen. Our entire capital and lending business will be in the new Magma Fincorp entity and Poonawalla Finance will cease to exist as a separate NBFC. Would you then be infusing more capital into Magma Fincorp eventually?Well now it is going to have a net worth of more than Rs 6,000 crore after our infusions so I do not think for at least four or five years, we will need to infuse any more capital because it will be well capitalised for the growth and the leverage that we plan to take over the next four or five years. With this kind of capital infusion, it will be very easy to leverage and grow at at least 20-25% if not more in the coming years. Maybe after four or five years, if we need to, we can because the loan book size right now is just over Rs 15,000 crore and so the debt to capital ratio and all that will be very conservative after our capital infusion. Do you also foresee better credit ratings in time to come and therefore a lower cost of funds as well?Absolutely. In fact, we would hope it is almost a certainty and that was part of the whole reason where we saw value in doing this because the cost of funds is probably close to 10% which we will bring down to 7% after this capital infusion and our brand and so many other factors. That will immediately affect and help the bottom line grow. That is obvious. That was one of the other immediate upsides that we saw that could come in or rather would happen as a result of us infusing this capital. So that is definitely going to be an immediate benefit. Of course, there are certain loans that would take time to payback from Magma to the lenders and then as that gets renewed, the cost of funds would be at a much lower rate with our credit rating also improving. Poonawalla Finance has a AA rating and we get the funds at a very low cost. Of course, that is going to be a major benefit that all the shareholders who can look forward to in the coming months.