Madhuchanda DeyMoneycontrol Research
NBFCs catering efficiently to low and middle income customers in economically vibrant states of western India having a strong track record of profitability and run by conservative experienced promoters – this combination looks like a no brainer for any investor. That’s exactly the value proposition offered by MAS Financial Services. Moreover, the valuation of the offer, at 3.6x post-issue book, leaves a lot on the table for investors as well.
MAS Financial’s Initial Public Offer (IPO) of Rs 460 crore is a combination of fresh issue of Rs 233 crore (dilution of close to 10 percent) and an offer for sale by investors FMO, DEG and Sarva Capital of Rs 227 crore. The issue, offered in the price band of Rs 456-459 per share will be open for subscription from October 6 to October 10, 2017.
MAS Financial, a Gujarat-headquartered NBFC (non-banking finance company) has been in existence for more than two decades. A journey that started in 1995 with micro enterprise and two-wheeler finance now spans across several product categories. The start was slow and cautious with the company reaching AUM of Rs 1,000 crore in 18 years. However, growth has picked up in the past four years.
Presently, the company operates across six states and Delhi spanning five product categories. The business primarily focuses on loans to small businesses and individuals.
What stands out for MAS is its knowledge of its end market and superior execution. Investors should draw comfort from the superior track record the business has exhibited over the years.
Steady growth in assets - The company's AUM (assets under management) has shown a CAGR (compounded annual growth rate) of 33.4 percent from FY13 to FY17 AUM.
Diversified offerings: The NBFC offers diversified products. While it continues to grow with existing products, it is expanding into new products like farm input segment, working capital financing for manufacturers and intermediaries of farm input products. Over time, the endeavour would be to build a complete product suite. Post demonetisation traditional lenders are finding the going tough, this opens up significant business opportunity for MAS.
Multi-channel distribution – The company has 121 branches across 6 states and Delhi – mostly in relatively prosperous states such as Gujarat, Maharashtra, Rajasthan, Karnataka and Tamil Nadu.
In addition to sales team, the company has entered into commercial arrangements with a large number of sourcing intermediaries, including commission based Direct Selling Agents and revenue sharing arrangements with various dealers and distributors where part of loan default is guaranteed by such sourcing partners. MAS has 98 small NBFC partners for sourcing business.
Strong credit underwriting skills resulting in excellent asset quality - The company has strong credit assessment process leading to pristine asset quality.
While most of the peers faced severe challenges post demonetisation, MAS Financial Services has managed it well. It has already migrated to NPA recognition on a 90-day past due basis.
Entered the lucrative and promising area of affordable housing- Through MAS Rural Housing & Mortgage Finance Limited (MRHMFL), the company provides loans for purchase of new and old houses, construction of houses on owned plots, home improvement loans and loans for purchase and construction of commercial property. It also extend loans to developers for construction of affordable housing projects.
Diversified funding base – Thanks to its stable credit history, MAS Financial Services enjoys improved credit status with lenders which helps in reducing cost of borrowings from banks and other financial institutions. It also obtains funds through assignment and/or securitisation of loan portfolio to banks, which purchase such portfolio to meet their priority sector and retail lending commitments.
Growing profitably – A superior execution and risk management has translated into steady and impressive financial performance. The company has been enjoying NIM (net interest margin) in the vicinity of 7 percent that looks sustainable, has superior return ratios and has shown no volatility in credit costs over the years.
Peer review – Most of its peers have faced challenges on account of migration to RBI stipulated 90-day past due basis NPA recognition norms, rural slowdown and last but not the least, demonetisation. Mas has negotiated all of these headwinds well. Hence, the GST transition is unlikely to have a lasting impact on its performance. Therefore, seen in the context of its listed peers, MAS stands out.