Madhuchanda Dey Moneycontrol Research
The stock of MAS Financial Services (MAS, CMP: Rs 615 per share; market capitalisation: Rs 3,362 crore) had a stellar debut on the bourses last year, but failed to maintained its listing momentum. However, financials continue to be steady and impressive. The Gujarat-based non-banking finance company (NBFC) has carved out a niche in lending to micro and small enterprises in its focused geographies, understands its end market well, has a unique sourcing strategy and is conscious about maintaining its profitability parameters. While a valuation re-rating is unlikely, steady mid-20s earnings growth beckons attention especially for risk averse investors content with a slow but steady earnings growth.
What makes MAS worth an attention?
At present, the company operates across six states and Delhi, although majority of its branches are in economically vibrant states of Gujarat and Maharashtra.
Source: Company
The business primarily focuses on loans to small businesses and individuals. It is present in four product categories: micro enterprise loans (MEL), SME (small and medium enterprise), two-wheeler and commercial vehicle (CV). The company also has a housing finance subsidiary catering to the affordable housing.
What stands out for MAS is its knowledge of end market and superior execution
MAS has a unique sourcing model. In addition to its 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 the loan default is guaranteed by such sourcing partners.
The company has 112 small NBFC partners for sourcing business. The assets generated by these NBFCs are hypothecated to it. Over 58 percent of assets have been contributed by these NBFCs.
It has stringent qualitative and quantitative evaluation criteria that keeps a check on delinquency. This is reflected in the numbers with the gross and net NPAs at 1.15 percent and 0.91 percent, respectively.
Quarterly snapshot
In the quarter gone by, the company sustained its growth trajectory while maintaining its profitability parameters. Assets under management (AUM) rose 30 percent to Rs 4,114 crore. A decline in finance costs, amid stable lending yields and control over operating expenses, resulted in a sharp improvement in profitability.
MAS has been consistently reducing its cost of funds by diversifying its borrowing mix. Close to 38 percent of AUM is assigned to banks and financial institutions and the cost of funding from this source is 8.75 percent.
The housing finance subsidiary too reported steady performance, with revenue increasing 17 percent YoY to Rs 27.3 crore and profit growing 31.5 percent YoY to Rs 25 crore in FY18. Total AUM rose 16 percent YoY at Rs 204 crore. The company is very well capitalised (capital adequacy ratio at 31.3 percent) and should see a steady road ahead.
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