MAS Financial Services Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Challenging cycle ending, growth returning: Management sees the MSME overleverage cycle concluding, with Q3 growth expected at 5%–7% QoQ and a return to the 20%–25% stride in 2–3 quarters.
• Asset quality range-bound, not worsening: Net NPA held at 1.5%–2% and gross NPA at 2.5%–2.75%; the slight impact is from the sectoral cycle, not product mix or geography, and no new caution industries were added.
• Opex rose but ROA held steady: Opex ratio increased to 2.84% on higher employee costs and fintech commissions, yet yields compensated and ROA remained stable; management calls 2.75%–3% ROA the real litmus test.
• Housing subsidiary to list separately: MAS intends to list the housing finance arm in 3–4 years at ~₹4,000–5,000 cr AUM, with parent holding rising to 70%–75% by then; growth was deliberately cautious given long delinquency cycles in affordable housing.
• What to watch next quarter: Whether the 5%–7% QoQ growth materializes on the back of more eligible borrowers, the pace of interest rate transmission to borrowers, and any movement in ROA toward the 3% target.

MSME Cycle & Asset Quality

• Cycle driven by lender overleverage: Management attributes the 4+ quarter MSME stress primarily to lenders' own doing through overleverage, not external shocks; that cycle is now settling as lenders have learned lessons.
• Borrower health improving at ground level: Balance sheets of borrowers are healthy; overleverage from prior periods takes 4–6 quarters to manage down, and inquiry volumes, approval ratios and micro-level financials are all giving positive signals.
• Zero DPD not the right metric: Borrowers in MAS's segments tend to pay even after entering some DPD, so zero DPD is not the index of portfolio quality; current DPD reflects old loans, and it will take time for new, higher-quality loans to shift the ratio.
• SME caution pre-dated tariffs: MAS had already restricted incremental funding to textiles, FMCG, and gems & jewelry before tariff news; no further deterioration seen, and tariff-related pressures are not having a big impact as businesses find ways to manage.
• No new caution industries: No additions were made to the caution list for the SME portfolio this quarter.

Kamlesh Gandhi: "I personally believe that while there can be many factors, but it was more of the lenders own doing that we faced all the problems, whatever we have faced mainly because of the overleverage and that is settling now."

Growth & Diversification

• Near-term stride returning: Management expects to return to the original 20%–25% growth stride, with a mean of around 22.5%–23%, within 2–3 quarters; Q3 growth is pegged at 5%–7% QoQ on the back of more eligible borrowers.
• MSME share to moderate by design: MSME currently contributes ~75% of the book; at the ₹20,000 cr AUM mark, the target mix is 65%–70% MSME and 30%–35% other products, driven by deliberate diversification.
• MEL growth deliberately slowed: MEL share declined from 45%–46% to ~40% as part of the midterm strategy to push SME growth slightly higher and increase average ticket size; MEL growth will remain range-bound and slightly below average book growth.
• Direct distribution push: Contribution of direct distribution is targeted at 70%–75% over the next 2–3 years, supported by expanding manpower, improving efficiency, and better technology leverage.
• Off-book AUM maintained: The company aims to keep 20%–25% of AUM as off-book through direct assignment and co-lending; ₹900 cr in direct assignment was executed this quarter, with a further ~₹1,600 cr in sanctions to be utilized over the next two quarters.

Kamlesh Gandhi: "We had dedicated ourselves on the purpose of taking this organization to INR1 lakh crore AUM within a decade. That is what drives each and every of our decision while taking into account one link of a change at a time."

Profitability & Operating Efficiency

• ROA held stable despite opex rise: Opex at 2.84% was well compensated by an increase in yields; ROA remained stable, and management stresses opex should not be seen in isolation since product configuration and retail vs. indirect retail contribution determine it.
• ROA target is the real litmus test: Management is concentrating on maintaining ROA between 2.75% and 3%, calling it the real measure of efficient operations; the current ROA sits at ~2.85%.
• ROA improvement timeline withheld: Management declined to give a timeline for moving from 2.85% to 3% ROA, saying internally the timeline is "from today" but reflecting it on paper is difficult.
• Interest rate transmission underway: The company is focused on reducing the rate of interest to borrowers; transmission is a work-in-progress expected within this quarter and next.
• Long-term ROE expectation: With debt-to-equity of 4x to 4.5x, ROEs ranging from 15% to 17% should be the right expectation; management deflected a question on whether higher leverage could be justified as scale and secured mix improve, citing lender comfort levels.

Kamlesh Gandhi: "Definitely, we would be concentrating on ROAs -- maintaining ROAs between 2.75% to 3%. That will be the real litmus test of efficient operations."

Capital & Subsidiary Strategy

• Housing subsidiary to list in 3–4 years: MAS intends to list the housing finance subsidiary separately when it reaches critical mass of ~₹4,000–5,000 cr AUM; parent holding will increase gradually from ~60%–63% to ~70%–75% by the time of listing.
• Housing growth deliberately cautious: In affordable housing, there is convergence between stressed borrowers and the affordable segment, so the company was cautious; management noted that aggressive lending in housing finance does not show up for 5–6 years, when real delinquency starts.
• Housing growth target: The company intends to grow the housing subsidiary at 30%–35% depending on opportunity.
• Current equity sufficient to ~₹20,000–22,000 cr AUM: With internal accruals and current capitalization levels, no equity raise is needed until that AUM threshold; equity raises occur every 3.5–4 years, and no substantial dilution is expected over the next decade.
• EPS protection expected: Management stated it should hold on to EPS in the coming time, though it deflected a direct question on dilution required to achieve 10-year goals given ROEs trending at 14%–15% versus 22%–23% growth.

Kamlesh Gandhi: "Housing finance is a business whereby any aggressive lending will not show up in 2, 3, 4 years. The real delinquency starts after 5, 6 years-plus."

Funding & Liquidity

• NCD issuance of ₹450 cr: Raised during the quarter, subscribed mainly by HDFC Mutual Fund, HSBC Mutual Fund, and retail investors.
• Direct assignment executed: A ₹900 cr direct assignment transaction was completed during the quarter, with further sanctions of ~₹1,600 cr to be utilized in the coming two quarters.
• Leverage comfort at 4x–4.5x debt-to-equity: Current lender comfort level translates to ~5x–5.5x leverage; anything above is not acceptable for lenders to offer better rates.
• Growth through internal accruals: Management reiterated its long-standing choice to grow through internal accruals rather than frequent equity raises.

Kamlesh Gandhi: "We have, right from the beginning, chosen a difficult part by choice that we would like to grow through internal accruals."

New Initiatives

• IRDAI approval for insurance broking: MASFin Insurance Broking received final approval from IRDAI; operations will initially focus on captive business, with open market operations to follow as opportunities arise.
• NBFC partner resilience: The majority of intermediary NBFCs performed exceedingly well even in trying times; midsized NBFCs demonstrated resilience and their place in the value chain.
• Fintech partnerships in personal loans: The company is working with fintechs in personal loans, where the interest spread is given to them as commission, contributing to the opex increase.

Guidance & Commitments

Key Metrics