MAS Financial Services Ltd Q4 FY2023 Concall Summary

Key Takeaways

• 25% CAGR, INR10,000 crore milestone in sight: The company delivered another year of ~25% growth, consistent with its two-decade track record, and expects to cross INR10,000 crores in AUM this year.
• MSME dominance with invisible market share: Over 80% of the book is MSME, where the addressable market is so vast that management says its share is "a fraction so less that can't be calculated."
• NIMs held steady in a rising-rate cycle: Despite cost of borrowings rising to 9.26% for the quarter, NIMs were maintained, and management is confident of keeping them in the 6.75% to 7% band going forward.
• Housing finance scales fast but PBT dips: The housing subsidiary grew 30%, but PBT fell 9.28% as branch and people investments loaded onto the opex line.
• What to watch next quarter: Whether the 175 new branches start converting into disbursement traction, the pace of cost-of-borrowing passthrough to borrowers, and any early signal on the personal loan portfolio's credit behavior.

MSME & SME: The Core Engine

• Invisible market share: Management cannot state its MSME market share in an integer, calling it a fraction too small to calculate, which it frames as a multi-decade runway.
• SME shift underway: The company is slightly shifting focus toward the SME piece, planning ~50 specialized SME-only branches, with ~20 already operational and a fleet of 350-400 people in various capacities.
• Rate passthrough without quality fear: A 0.25-0.30% rate hike passed to borrowers is not expected to hurt asset quality, as the company has managed good quality through cycles with much higher rates.
• Credit assessment sharpened by tech: Direct access to GST data, banking data and credit scores has made credit assessment more accurate and reduced turnaround time, though management insists technology aids rather than replaces human judgment.

Gandhi: "If I talk about this is my market share in MSME, it will be difficult for me to give any number in an integer. It is a fraction and so less that can't be calculated."

Housing Finance: Growth vs. Profitability

• 30% topline growth, margin investment: The housing finance subsidiary registered 30% growth with net Stage 3 assets at a pristine 0.52%, but PBT declined 9.28% as branch network expansion and employee additions pushed up other operating expenditure.
• INR1,000 crore ambition: Management anticipates 30-35% growth this year and sees the housing company reaching INR1,000 crores in the next year or two, with growth capital available whenever required.
• Asset quality inching up but range-bound: Gross NPAs for Stage 3 assets have been inching up over the last four quarters to 0.62%, but management expects this to stay range-bound and well within the acceptable sub-2% level.

New Products: Cautious Scaling

• SPL segment at critical mass: The SPL (small personal loan) segment has built a critical mass of INR300 crores, which management considers the minimum needed to assess product performance; further scaling depends on asset quality experience and learnings.
• Personal loans: too early to call: Management declined to share performance data on the personal loan portfolio, stating it is "really early to know the trends" since this was the first year of critical mass, and will watch the portfolio very closely this year.
• Sequential, not cross-sell: The customer base is currently very independent, with loans typically sequential in nature (complete one loan, then take another), meaning cross-sell is available but only after one side of a loan is substantially completed.

Gandhi: "Any new products which will pick up, we don't grow very aggressively. But at the same time, we need some critical mass to assess the product performance. And we think that this was a critical mass we need to build up to get the product performance."

Liabilities & NIM Management

• Cost of borrowings rising, but managed: Cost of borrowings was 9.26% for the quarter and 9.02% for the full year, with management expecting it to settle around 9.5% in coming quarters as MCLR resets flow through.
• NIM confidence anchored in repricing: Despite the volatile period, NIMs were maintained because the company negotiated premiums on MCLR with lenders and began repricing assets last year; management is confident of maintaining NIMs between 6.75% and 7%.
• Liability diversification has natural limits: The company draws from PSUs, private banks, developmental financial institutions, capital markets (MLD, NCDs), assignments and PTC, but management notes that at a particular size, diversification beyond a point is not possible; growth itself will create room to diversify further.
• Sanctions buffer: The company holds more than INR1,200 crores of sanctions in various forms, sufficient for Q1, and aims to stay 2-3 quarters ahead in terms of sanctions.

Gandhi: "Your capabilities to reject an offer is very important for getting the right rate."

Distribution & Branch Expansion

• Direct distribution gaining share: The direct distribution network contributed 63% this year and will continue to contribute more going forward, while the 12-year-old NBFC distribution channel has cumulatively disbursed over INR20,000 crores with loss given default of less than 1%.
• 175 new branches planned: The company contemplates opening more than 175 branches this year, up from 150, and likes to be ahead by 2-3 quarters in terms of asset requirements when opening new branches.
• New branches need time to mature: All new branches will start gaining in disbursements over time once they have experience, the right team, and demographic understanding; branches already opened will gain critical mass and help reduce the opex ratio.
• Sourcing intermediaries declined: The number of CV intermediary partners fell from 372 to 268 and two-wheeler intermediaries from 312 to 242; management described this as dynamic but did not specify whether the reduction was intentional.

Asset Quality & Credit Cost

• Sub-2% net Stage 3 confidence: Management is confident of maintaining net Stage 3 assets between 1.5% and 2%, with gross Stage 3 between 2.25% and 2.75%, and credit cost anywhere close to 1% next year.
• 90 DPD well maintained: The focus remains on maintaining at least 90% plus on current, with 90 DPD well maintained, though within-bucket percentages may vary.
• Digitization as aid, not replacement: Management draws a sharp line: digitization as an aid to manual credit decisioning is fine, but as an alternative it has produced poor portfolio quality across fintechs, calling it "a very long-term journey."

Gandhi: "If you take digitization as aid to manual credit decisioning or as an alternative to manual credit decisioning is the point of debate. And when it comes to the point on credit decisioning is taken as an alternate to human credit decisioning, the portfolio quality for across the fintechs has not been that great. And I'm afraid that it's a very long-term journey."

Guidance & Commitments

Key Metrics