When vaccine czar Adar Poonawalla invested ~$469 million in Magma Fincorp earlier this year, it did not surprise the financial services world. The majority owner of Serum Institute of India, the world’s largest vaccine maker, the Poonawalla family hit the jackpot in the pandemic. Already a cash-rich business, Serum would spew even more cash as the world can’t get enough Covid vaccines for the foreseeable future. Ploughing it back into an NBFC was a no-brainer; lending is where fat margins are made.
At the time of the acquisition, though, Magma was in a soup—its loan book was shrinking, riddled with bad loans. As Mumbai Multimedia Studio reports, the company could never get a handle on the cost of funds. Even private equity backer KKR gave up and exited in 2018 with a mere 2X return. Apparently, all that Magma needed was capital and Poonawalla brought enough.
The markets saw it that way too. Magma’s stock price rose 150% between January and February 2021, when the deal was swiftly completed in a month.
But scripting a turnaround isn’t as straightforward as a simple infusion of funds. Especially when the new owner wants to take the company apart and rebuild it, block by block, as a retail lender. Poonawalla has a playbook in Bajaj Finance, India’s largest NBFC, and is leveraging Serum's experience in customer acquisition—Serum plugs into national supply chains, it doesn’t rely on retail sales.
Just as the company embarked on a creative destruction path—to rundown its asset-backed finance loan book—it hit a leadership crisis last week. The MD was pulled up by the market regulator Sebi for alleged insider trading during the acquisition. The Chairman rushed to assure the investors that he’d take a hands-on approach like he does at Serum.
But the two businesses couldn’t be further apart in more ways than one. At Serum, the line of command has been stable and loyal. At Fincorp, there’s an HR crisis at hand presently. #yusufbhandarkar www.multimediastudio.net