Magma Leasing & Shrachi Infra Fin to merge

To create a Financial Services Powerhouse with assets under management of over Rs. 4,500 crore

To create an all India presence with strong penetration in rural and semi- urban regions

To create substantial opportunities to leverage branch network for financing assets and offering fee based products

Disbursements of over Rs. 2,500 crore (FY 2006)

146 branch network and 2,288 employee strength

Expert and experienced management skills and being jointly driven by promoters of both Companies

Transaction to be financially and operationally accretive with a view to create incremental value for the shareholders of both Companies.

Kolkata, August 25 2006: Magma Leasing Limited (Magma), one of the fastest growing financial services Companies in India, and Shrachi Infrastructure Finance Limited (SIFL), an established NBFC with a strong presence in the rural markets of south and east India, in separate Board meetings today approved a merger agreement based upon an all stock deal.

Under the terms of agreement, the Company will issue one Magma equity share for three existing equity shares of SIFL (1 Magma: 3 SIFL). The transaction is subject to shareholders, High Court, RBI, stock exchanges and other statutory and regulatory approvals applicable to both companies. Once approved, the merger will be effective from April 1, 2006. KPMG conducted the due diligence on the transaction while the independent valuations and advisory services to both the companies were rendered by Ernst and Young.

Commenting on the transaction, Sanjay Chamria, Managing Director, Magma Leasing Limited said: "This is an encouraging development for Magma as well as Shrachi. With the completion of the merger, we will create a Financial Services Powerhouse with assets under management of over Rs. 4,500 crore and an all India footprint in our niche rural and semi-urban markets. Moreover, this deal will create a huge opportunity to roll out our bouquet of fund and fee based products across Shrachi's branches and customer base.

Both the organisations have long standing relationships with large domestic and foreign banks and institutions which the merged entity will benefit from.

This transaction will also increase our management bandwidth as the promoters and management team of both Companies will work collectively in further expanding the business."

Ravi Todi, Managing Director, Shrachi Infrastructure Finance said:"We are delighted to announce a transaction that in our opinion will be immensely beneficial to the shareholders of both Companies. Given Magma's and Shrachi's operating profile both Companies are a natural fit. Best practices in systems and processes of both companies will now be implemented in the new entity which will further help augment greater efficiency. It is a momentous occasion for both Companies and we will now work jointly as one to ensure rapid growth of our business going forward."

Creating a bigger and better financial services powerhouse

Assets under management of over Rs. 4,500 crore

This transaction will create a large sized financial services Company with assets under management of Rs. 4,584 crore. Magma and SIFL's asset base as of March 31, 2006 was Rs. 3,334 and Rs. 1,250 crore respectively. Both the Companies have been increasing their asset base in the past and pooled resources should assist to rapidly grow business in the future.

Joint disbursements of over Rs. 2,500 crore for FY2006

In FY2006, Magma and SIFL had business disbursements of Rs. 1,820 crore and Rs. 702 crore, adding up to Rs. 2,522 crore. Going forward, the combined entity along with a strengthened balance sheet will be able to do additional high margin business on its own books.

Pan India presence with deep penetration in rural and semi-urban markets

Magma currently has deep presence in East and North markets with expanding reach in West. While SIFL has strong presence in the rural markets of South and East Markets. This deal will synergize the locational strengths of both the Companies to create an entity with a strong all India presence across North, South, and East markets with increasing access to the West. The merged entity will continue to focus on niche and emerging rural and semi-urban markets.

146 branches network with a strong team of 2,288 employees

As on June 30, 2006, Magma and SIFL have 68 and 78 branches respectively, together establishing a dominant 146 branch network. In addition, Magma and SIFL have 1,499 and 789 employees respectively which collectively will create a huge fleet of 2,288 employees. This will create immense potential to obtain incremental business for the combined entity.

Diversified services portfolio

Magma has a well diversified product portfolio comprising commercial vehicle finance, car & utility vehicle finance, construction equipment finance, used commercial vehicle finance, strategic construction equipment finance and fee based businesses. This transaction will help promote multiple products across the entire network of branches.

Customer base of over 150,000

A larger customer base will substantially enhance the merged entity's ability to cross sell fee based products like insurance and personal loans leading to better earnings going forward. Natural fit and opportunity to result in multiple synergies

Expansion of management bandwidth

The transaction will combine the management teams of both Companies and the promoters will jointly work together to grow the business. Such a combination of pooled resources will significantly increase management bandwidth which is essential to drive future growth. This will enable the Company to have better penetration on an all India basis and will assist in developing an advantageous niche as compared to other NBFC players.

Leverage multiple Magma products across SIFL branches

Magma has 7 fund and fee based product segment as compared to SIFL which is primarily a CV financing Company with small portions of its business coming from products such as two wheeler and three wheeler loans. This has shaped a clear opportunity to introduce Magma's bouquet of fund and fee based products through SIFL branches resulting in a potential to drive growth immediately as the merger becomes effective.

Large size and scale led benefits

This deal will establish a financial services Company with a sizeable network of branches (146) and employees (2,288) which will increase the per branch / employee throughput. Larger asset and customer base should also improve the Company's overall rating assisting the Company to negotiate better funding costs going forward.

Structure of the transaction 3: 1 all stock swap deal

Both Magma and SIFL will merge in an all stock agreement. As per the terms of the agreement, the Company will issue one Magma equity share for three existing equity shares of SIFL. This agreement is subject to shareholders, High Court, RBI, Stock Exchanges and other statutory and regulatory approvals of both companies.

Strong ownership profile*

The merged entity will have a strong shareholding structure with Magma promoters holding 42.8%, SIFL promoters holding 8.2% and overseas investors holding 21.3%. The promoters and promoter group companies of Shrachi will be entitled to a non-compete fee as consideration for not competing with the business of the merged entity for a period of 6 years, which fee is being discharged by an additional allotment of 329,000 Equity Shares of Magma. Mr.S.K.Todi, currently Chairman of SIFL, will be the Vice-Chairman of the merged entity while Mr. Ravi Todi, Managing Director of SIFL will join the board of the merged entity in an executive capacity.

*Based on shareholding structure as on June 30, 2006

Best-in-class advisors Both Magma and SIFL have employed some of the best advisors to counsel on the deal. Ernst and Young worked on the valuations and advisory services for both the companies while KPMG conducted a due diligence.

Immediately accretive and strong growth outlook

Operationally and financially accretive transaction

Increase in equity capital - 19% Increase in - Asset base 36% - Disbursements 39% - Branch network 115% - PAT 29%

The increase in equity capital as compared to increase in asset base, disbursements, branch network, and PAT demonstrates that the merger between Magma and SIFL will create incremental value for shareholders of both Companies.

Robust growth outlook going forward With collective presence and infrastructure across the country in strategic locations, the merged entity will emerge as a formidable NBFC player to combine resources and grow the business aggressively across a well-diversified product portfolio. Stronger balance sheet strength will facilitate higher margin business on its own books owing to which the Company should deliver superior performance going forward. The merged entity will operate with a renewed brand that captures brand equity of both Magma and SIFL.