MAS Financial Services Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Steady 20-25% growth engine intact: AUM crossed ₹10,000 crores standalone, PAT crossed ₹250 crores consolidated, and the company reiterated its 20-25% growth and 15-17% ROE target, calling consistency its strategy.
• Housing finance is scaling fast and cleanly: The subsidiary grew AUM 44% this quarter with net Stage 3 at just 0.66%, and management expects NPAs to settle at a manageable 0.8-1.2% as the portfolio seasons.
• Rating upgrade to AA- is a slow-burn tailwind: The benefit will start flowing this quarter, but the full impact on cost of funds will take a few quarters to reflect as MCLR-linked loans reprice.
• Direct distribution is the margin lever in motion: The mix has shifted to 68:32 in favor of direct, targeting 70-75, which management says will push up opex but also yield, keeping ROAs stable at ~2.80%.
• What to watch next quarter: Whether the AA- rating benefit begins to show in the cost of borrowing, the pace of branch additions in North and South, and any early shape to the used-car pilot.

Growth & Portfolio Composition

• Standalone milestone: AUM crossed ₹10,000 crores on a standalone basis this quarter, with consolidated AUM growth at 26.05% and PAT growth at 23.41% for FY24.
• MSME dominance: The portfolio remains 80% MSME-funded, with SPL under 6% and Wheels as another segment; housing contributes 6% currently and is expected to grow meaningfully.
• SPL is contained and partnership-driven: The salaried personal loan book will stay below 10% of total AUM, a cap maintained even before the RBI raised risk weightings on unsecured loans; 35-40% of SPL flows through FinTech partnerships.
• Organic lending is pulling ahead: Direct distribution now at 68% and expected to settle at 70-75, not because the NBFC partner book is shrinking in absolute terms but because organic is growing faster; management continues adding new NBFC partners.
• Ticket size varies by channel: Organic lending ticket sizes are higher than partner-driven in MEL and SME, while in two-wheeler and SRTO they are almost the same.
• SME quality holds at higher tickets: Despite the average ticket size rising to ₹20 lakhs, credit quality has been maintained satisfactorily; the company prioritizes credit risk and profitability over growth.

Kamlesh Gandhi: "I personally believe that even growing at around 20%, 25% is doubling your AUM every 3.5 years to 4 years. And that is a tall order in a lending business if you want to prioritize quality and profitability both."

Housing Finance: The Second Engine

• Scale with quality: The housing finance subsidiary grew AUM at 44% this quarter, with net Stage 3 at a benign 0.66%; management guides for 30-35% growth and will try to surpass that.
• NPA trajectory is known and priced in: On a smaller, less seasoned portfolio, Stage 3 moved from 0.5% to 0.6%; as the book seasons, NPAs are expected to settle at 0.8-1.2% for affordable borrowers, with credit cost remaining sub-1%.
• Conservative underwriting limits loss: NPAs do not necessarily mean credit loss because of conservative LTVs; the company never finances compromised titles, which increases the speed of selling repossessed properties if needed.
• Capital cushion is ample: Housing finance capital adequacy stands at 38%, benefiting from the lower risk weightage of affordable housing assets.

Kamlesh Gandhi: "I think in the long run we will see net stage three as a portfolio season and especially in the borrowers whom we are working, serving, that is in the affordable space, we will see this housing finance NPAs to settle anywhere between 0.8% to 1.2% going forward."

Liability & Capital Management

• Cost of borrowing stable: Cost of borrowing for the quarter was 9.82%, up from 9.34% YoY but stable sequentially; management expects it to remain around this level in the coming quarter.
• Rating upgrade to reprice slowly: The upgrade to AA- will help in the medium term, but since the majority of loans are MCLR-backed, the opportunity to renegotiate comes only as MCLR resets; the overall impact on cost of funds will take a few quarters to reflect.
• Spread reduction ahead: A 15-25 bps reduction in spreads on bank loans is expected in the next 3-6 months, depending on how MCLR movements affect banks' own cost of funds.
• Liquidity is deep: The company maintained average liquidity of ~₹800 crores, an unutilized cash credit facility of ₹575 crores, and sanctions on hand of ~₹1,100 crores; structural liquidity is positive across all cumulative buckets.
• Term loan raised: ~₹890 crores of term loans were raised during the quarter with an average maturity of three to five years, strengthening the asset-liability maturity pattern.
• Cash credit is the cheapest tool: Cash credit is the most cost-effective borrowing because a guideline converts it into a 60% WCDL limit rolled over every 90-120 days, with rates depending on rollover tenure; it also allows parking excess funds without negative carry.
• Off-book strategy steady: The off-book portfolio is 22% of total AUM; the strategy targets 20-25% via direct assignment and 5-10% via co-lending; ~₹600 crores of direct assignment was done in the March quarter with another ₹1,000 crores sanctioned.
• Capital raise is opportunistic, not urgent: An enabling resolution exists to raise up to ₹700 crores, but the process is open-ended; management will meet investors quarter-on-quarter and decide based on the right valuations and investor fit.

Kamlesh Gandhi: "It is absolutely open-ended because this is an exercise done very well in advance, not from the statutory requirement or not even from the gearing point of view. But in our next phase of growth, if you look at one link of chain at a time from INR 10,000 crores to INR 20,000 crores, we thought that some infusion of capital will further strengthen the balance sheet."

Margins, Yield & Operating Efficiency

• ROE in the target band: ROE on a yearly basis is ~16.3%, down from 16.98% last quarter; the company endeavors to maintain ROEs in the 15-17% range while growing 20-25%.
• NIM and yield are stable: On a consolidated basis, NIM is maintained at 7% with overall yield close to 16%; management pushed back on calculated-yield analysis, saying product variations and dynamics make the average calculated yield misleading.
• Opex will rise, ROA will hold: The cost of operations as a percentage of AUM will increase as the retail mix moves toward 70-75% direct, but this will be compensated by higher yields; ROAs remain stable at ~2.80%, and operational costs can stay at this level or a little higher without affecting ROAs.
• ROA guidance embeds the upgrade: The 2.75-3.00% ROA guidance already has the rating upgrade benefit, economies of scale, and direct distribution benefits built in, per management.
• Leverage is comfortable: Leverage remains at around 4x in the parent company and less than 4x in housing finance; management is comfortable with parent leverage at 4-4.6x and housing finance at 4.5-5%.

Geographic & Product Expansion

• Branch build-out underway: An incremental 20-30 branches are planned within the next 6-9 months, with 40-45% coming from North and South India.
• South entry via SME: Hyderabad was opened with the SME product first, with other products to be introduced later; focus states are Telangana, Karnataka, and Tamil Nadu.
• North is deepening: The North expansion started with SME and is slowly introducing other products; focus is on Delhi NCR and geographies above that.
• Used-car pilot is a new leg: A used-car division is being piloted as a carve-out from the existing Wheels portfolio; it is expected to start taking shape as an additional product within the next 3-4 quarters.
• Regional mix to diversify: In the next 2-3 years, North and South are expected to contribute 25-30% of the loan book, with West (Gujarat) leading at ~40% and Maharashtra, MP, and Rajasthan equally divided at 10-12% each.

Dhvanil Gandhi: "We are not facing any constraint per se, but we are anticipating that the geographical diversification will be good and getting ready for it early will be helpful rather than, say, two years down the line, increasing the portfolio very rapidly in other states is something which has not been our way of working."

Technology & Operating Backbone

• In-house tech stack: The company has its own in-house technology team, one of the strongest LMS platforms, and has developed LOS for all systems; a dedicated team is now building a core banking system, with progress to be shared within a few quarters.
• Team depth is a moat: The company has 3,700 people, with 550+ having tenure of more than five years and a core team with 15-25 years of tenure.
• No RBI headwind: The RBI's risk-weight increase on unsecured lending has no impact on the company because all its business falls under priority sector lending for banks; there is no liquidity or credit squeeze, and no impact from RBI commentary on NBFCs.

Kamlesh Gandhi: "And in our belief that consistency and steadiness is the best way to reach your destination."

Guidance & Commitments

Key Metrics