Motilal Oswal has initiated coverage with Buy call on MAS Financial Services and target price of Rs 740, implying 18 percent potential upside as it is an efficient player in high growth product segment. The stock rallied nearly 5 percent intraday Friday.
It believes MAS has all the ingredients of a good investment: (a) a small base and presence in well-developed states for strong growth, (b) superior asset quality, (c) relentless management focus on generating sustainable, high return ratios, (d) healthy capitalisation, and (e) consistent dividend payout.
MAS is present in high-growth segments like micro-lending (57 percent of AUM), MSME lending (25 percent), vehicle finance (13 percent) and housing finance (5 percent). It has a unique business model, with over 55 percent of asset under management (AUM) coming from on-lending to other NBFCs and sourcing agents across focused product categories.
AUM generated by NBFCs is hypothecated to MAS Financial and 35-40 percent of AUM is assigned to banks, the research house said, adding the existing network offers immense growth opportunities and it expects the company to focus on local area expertise rather than expanding aggressively.
Over the past five years, MASs AUM grew at a robust 35 percent CAGR to reach Rs 3,700 crore in first half of FY18. Growth was driven by their flagship product (MEL loans) and new product such as SME loans. MEL and SME accounts for over 83 percent of the total AUM versus 64 percent in FY13. The company has impeccable track record of 39 percent PAT CAGR over FY12-17 with consistent return on assets (on AUM) of over 2 percent.
Given a favourable backdrop, Motilal Oswal expects the company to deliver 25 percent AUM over FY17-20, resulting in 25 percent EPS CAGR over the same time period.
The research house said margin improvement, operating efficiency and controlled credit cost should drive ROA improvement of over 60bp and the company is expected to report over 18 percent return on equity on a consistent basis.
It feels the recent capital raise would be sufficient for next three years of growth.
MAS Financial Services is an Ahmedabad-headquartered, non-deposit-taking NBFC incorporated in 1995 by first-generation entrepreneurs, Kamlesh Gandhi and Mukesh Gandhi. It operates out of six states, of which Gujarat and Maharashtra account for bulk of the AUM. A quintessential NBFC, it targets the middle and low income customer segments.
The company has consistently delivered gross non-performing asset ratio of 0.8-1.2 percent, despite change in norms on NPA migration and macroeconomic factors outside management control.
"Credit cost (including standard asset provision) for the company stands at around 1 percent - this is among the lowest in our NBFC coverage," Motilal Oswal said.
Motilal Oswal's bull case target price for the stock is at Rs 907 per share. In this case, it expects AUM/net profit to grow at a CAGR of 30/44 percent over FY17-20.
At 13:52 hours IST, the stock price was quoting at Rs 648.00, up Rs 21.55, or 3.44 percent on the BSE.
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