MAS Financial Services Ltd Q3 FY2025 Concall Summary

Key Takeaways

• AUM grew 21% with stable profitability: Consolidated AUM rose 21.17% YoY while the company maintained ~25% profitability and asset quality saw only negligible upticks, demonstrating resilience in a challenging environment.
• Strategic caution on microfinance and select SME sectors: MEL grew only 8% as management sees over-leveraged borrowers; SME stress is visible in textiles and FMCG. The company is tightening credit screens and bracing for another one to two quarters of industry stress.
• Cost of borrowing held flat despite MCLR rise: Cost of borrowing remained stable at 9.84% (vs 9.86% YoY), aided by a rating upgrade, and is expected to stay stable going forward.
• Capital adequacy dip is structural, not risk-driven: CAR fell from ~28% to 25% because the company deliberately reduced off-book exposure (22% to 20%), shifting more assets on-book after a capital raise. Management says this will be managed.
• What to watch next quarter: Whether MEL stress peaks within the guided one-to-two-quarter window, how the BRE-enabled LOS launch affects credit filtering, and whether the SME stress in textiles and FMCG spreads to other sectors.

Portfolio Mix & Asset Quality

• MSME dominates at 77% of portfolio: SME is growing faster than MEL, aligning with the strategic intent to prioritize risk-managed segments. The company aims for a long-term mix of MSME ~60%, wheels 25–30%, and unsecured personal loans below 10%.
• MEL stress is sector-wide but concentrated: Management sees stress across the sector and across borrowers, with MEL carrying relatively higher stress. The microfinance industry is expected to need another quarter or two before it can work normally.
• SME stress is pocketed in two sectors: Textile and FMCG are under abnormal pressure and being watched very closely; the list of sectors under watch may change as conditions evolve. Better documentation (GST, banking) provides guardrails.
• Two-wheeler book is protected by old-school underwriting: The company insists on stability of own house even for two-wheeler loans, a practice management says few NBFCs still follow. Some overlap with MEL borrowers means some impact is unavoidable, but the credit delivery model provides protection.
• Commercial vehicle portfolio is too small to register large stress: Management is more circumspect as they rebuild that portfolio and would like to maintain 90 DPD around 5%.
• Rejection rates have risen substantially: The increase comes from both tightened credit screens (more filters) and customer-side deterioration in income or increased leverage.

Gandhi: "We still are among the few NBFCs, or I cannot claim the only NBFCs, I am using this among the few NBFCs who insist a stability of own house even in two wheeler."

Risk Management Philosophy

• "Crush the risk as much as possible" is the operating principle: When the environment is vitiated, management tightens credit screens, tightens origination, and puts brakes on certain businesses for certain quarters.
• Credit tightening compresses yields, not expands them: Borrowers with better credit profiles demand better rates, so this is not a time to get higher yields. Any compression on yields is expected to be offset by operational cost and credit cost savings.
• PCR is fully data-driven: Provisioning relies on the last five years of portfolio performance and also depends on guarantees from CGTMSE and CGFMU.
• BRE-enabled LOS is imminent: The sandbox for the business rules engine is almost over; by March the company should launch the BRE-enabled loan origination system, which is expected to increase operational efficiencies and improve risk management.

Gandhi: "On the contrary, these are the time to calibrate everything because this is the time to tighten credit screens. When you tighten the credit screen, you get borrowers who are having better credit profile. The borrowers with a better credit profile will demand better rates. So, really not the time."

NBFC Partnership Model

• A 15-year-old relationship business, not a transactional one: The model provides deeper penetration and shields the company from cyclical shocks because loans are originated and guaranteed by partners to an extent.
• Yields are not opportunistically raised: Management will not increase yields depending on market conditions unless the cost of funds increases, a discipline that has kept partner relationships in good stead.
• Partnership share to stay at 30–35%: The business will remain within this band as the company grows.

Gandhi: "This is a relationship business and not a transaction business. Whenever we work with NBFC, it is a relationship business. So, we don't increase yields depending upon the situation in the market unless our cost of fund increases, and that is what has kept us in good stead in terms of relationships with all these NBFCs."

Personal Loan Strategy

• Small book, disciplined boundaries: SPL is 69% of the personal loan book but absolute AUM is not large. Management does not want to increase SPL beyond 10% of AUM for the coming two to three years.
• FinTech partners drive 55–60% of PL business: Personal loans are assessed 100% on documents, maximizing digitalization. FinTech partners provide a 5% security cover against default. Net pricing to borrowers is in the 21–24% range.
• Capital will follow credit quality, not growth targets: Management will allocate more capital to personal loans only if the business fits credit screens and asset quality can be maintained; they do not deviate from the philosophy of discovering growth rather than targeting it.

Funding, Liquidity & Margins

• Cost of borrowing stable despite headwinds: At 9.84%, the cost of borrowing was flat YoY even though MCLR has risen ~30–35 bps since March. The rating upgrade provided an immediate offset. Management expects stability going forward.
• Rate-cut transmission will be slow and muted: A 0.25% reduction does not matter to borrowers; only a sustained cut from 9.8% to 9% would start trickling down. The majority of liabilities are MCLR-backed, so transmission depends on reset dates.
• OPEX rising with channel shift, but NIMs protected: OPEX is increasing due to a shift to the direct channel, but higher OPEX will not affect NIMs or ROA because it will result in higher yields. On a medium-term basis, OPEX is expected to be 2.75% to 3%.
• Off-book mix deliberately reduced: Direct assignment and co-lending transactions are targeted at 20–25% of AUM; the recent decline from 22% to 20% was strategic, driven by excess liquidity and a capital raise.

Gandhi: "Because the borrowers whom we sell, practically a rate reduction of 0.25% or something like that really does not matter. And at times we build up some cushions if we get an advantage of whenever there is some rate cut. But eventually when there is a sustained rate cut, say for example from our 9.8% to it reduces to 9% over a sustained basis, that is where it starts trickling down to our borrowers also in terms of advantage."

Subsidiaries & Infrastructure

• Housing finance crossed ₹700 cr, grew 29%: Asset quality is strong with net Stage-3 below 1% and buffer provisions included. The subsidiary is expected to grow 25–30% going forward and become a value creator for the parent within the next couple of years.
• In-house tech team now over 100: The LOS is in place for all products, and the BRE sandbox is nearly complete. Launch is expected by March.
• Team strength at 4,000 including housing finance: The company has a strong second and middle line, very minimal attrition, and a good leadership pipeline.

Guidance & Commitments

Key Metrics