MAS Financials Services Ltd - On the track to excel - Angel Broking

MAS Financial Services (MAS) is a Gujarat based NBFC, which is two decades old. It primarily lends to Micro Enterprises (ME) and SME, which contribute 60% and 23% of its AUM respectively. Company's business and financing is in five categories i.e. micro-enterprise loan, SME loans, two wheeler loans, commercial vehicle loans and housing loans. Company's AUM has grown at healthy 33.4% CAGR over FY2013-17 with strong asset quality (GNPA -1.1%, NNPA -0.9%). Expanding offerings to support AUM growth: MAS had begun its journey with a clear focus to ME and gradually expanded its offerings to two wheeler & CV segments for its existing client. FY2012 onwards, MAS commenced lending to SME and Housing loan, which is growing at a very healthy rate. To leverage existing client base and network further it has extended loans to the agricultural input and equipment segment.

Fairly strong AUM growth at 33.4% CAGR over FY2013-17: Focused approach towards asset financing, ability to find out gaps and the underserved sections of the micro enterprise SME, Vehicle Finance, segments has helped the company to achieve a strong 33.4% CAGR in AUM over FY2013-17.

Healthy return ratios: MAS has reported average ROE/ROA of 27.9%/3.2% over last 5 years. Higher return ratios are largely driven by lower Cost to Income(C/I) (33.5%) and lower provisioning expenses. C/I has declined from 43.7% in FY2013 to 33.5% in FY2017, and we believe C/I would continue to decline further.

Strong asset quality; sufficient CAR to support growth: Robust credit assessment process and clever understanding of targeted market has helped to keep GNPA at 1% over last 5 years. As on 1QFY2018, CAR stood at 23.8% and post IPO CAR would further increase. With strong internal capital generation ability, present high CAR and IPO proceeds would not require MAS to dilute equity for high growth in near future.

High valuations underpinned by high growth potential and profitability: Close peers, Capital First and Shriram City Union Finance are trading at ~3x FY2017 book, however both the companies report moderate ROE of 11%. At the upper end of the price band, MAS is valued at 6.85x of FY2017 book value (Pre-IPO) and on post dilution basis at 4.1x of Book value. Although valuations are on the higher side, looking at the strong and sustainable growth and ROE prospects of the company, we recommend a Subscribe to the issue.

Source : Equity Bulls

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