IGI Logo

Strong RoA, Sustained Growth Levers and Undemanding Valuations

Est. Vs. Actual for Q2FY27: NII – MISS; PPOP – INLINE; PAT – INLINE

Changes in Estimates post Q2FY27 FY27E/FY28E/FY29E (%): NII: 1.2/-0.6/-1.7; PPOP: -0.9/-3.3/-4.5; PAT: -7.6/-8.8/-8.4

Recommendation Rationale

* AUM Growth Remains Healthy; Quality of Growth Takes Priority: MAS delivered another consistent quarter of strong broad-based growth with AUM growing at 23/6% YoY/QoQ and remains confident of achieving its near-term AUM guidance of Rs 20,00 Cr as it exits FY27. Over the medium term, MAS remains constructive on scaling the AUM to Rs 30,000-35,000 Cr. Management reiterated its long-standing growth framework of 20-25%, with lending decisions remaining anchored to risk-adjusted returns rather than aggressive growth. Encouragingly, credit demand remains healthy across segments, and management expects the momentum to continue through H2. However, MAS remains prepared to moderate disbursements in case borrower profiles or early delinquency indicators warrant tighter underwriting. We remain confident in MAS’ ability to sustainably deliver a healthy 23% CAGR AUM growth over FY26-29E, supported by its core SME segment and gradual build-up of the Wheels portfolio.

* Repricing Ability to Cushion Margin Pressure: MAS’ CoF in Q2 declined by 6bps QoQ, however, with the commencement of the rate hike cycle, management expects CoF to inch-up by 20-25bps on CoF. MAS is likely to exit FY27 with CoF settling at 9.4-9.5% vs 9.2% in Q2. However, the pass-through in CoF is expected to be gradual, with ~20% of borrowings being fixed-rate and 50% being MCLR-linked, predominantly with a 6-12 month reset period. While repo-linked borrowings will see rate action, these borrowings have quarterly resets. On the asset side, 65-70% of the portfolio is fixed-rate, with the balance linked to floating rates. While this creates a potential near-term mismatch, MAS benefits from the shorter tenure of several lending products, which allows it the flexibility to reprice incremental disbursements at higher rates. However, management indicated that the sensitivity of borrower profile to a 25-50bps rate hike is low, thereby allowing MAS to pass on the rate hike. With these dynamics at play, management expects to protect NIMs to be maintained at 6.9% (+/-5bps) over FY27-29E.

Company Outlook: MAS’ healthy credit demand, established MSME franchise with scope to increase ticket sizes provide visibility on sustained AUM growth. The gradual build-out of the Wheels portfolio and expansion of the housing finance subsidiary offer further impetus to mediumterm growth. We expect the company to maintain its disciplined underwriting approach, thereby enabling it to maintain broadly stable asset quality metrics and controlled credit costs. While the reversal of the rate cycle poses challenges to margins, MAS’ ability to reprice incremental disbursements and pass-on rate hikes to customers with lower sensitivity to rate change should help absorb the anticipated increase in CoF and protect margins. We do not see any material risk to the sustained ~2.9-3% RoA delivery, supported by calibrated growth, operating efficiencies and a continued focus on risk-adjusted returns. At current valuations (1.2x/1.0x FY28/FY29E BV), the stock appears attractive, in our view, with the key upside driver being sustained growth delivery

Current Valuation: 1.5x Sep’28E BV

Earlier Valuation: 1.9x FY28E BV Current TP: Rs 340/share Earlier TP: Rs 405/share

Recommendation: We maintain our BUY recommendation on the stock. Alternative BUY Ideas from our Sector Coverage: Bajaj Finance (TP – Rs 1,255)

Financial Performance:

* Operational Performance: MAS saw robust disbursement growth of 51/10% YoY/QoQ. The share of sourcing from NBFC partners stood at 31.8% vs 33% QoQ, in line with management guidance of improving direct mix to ~70% over the medium term. AUM growth was healthy and stood at 23/6% YoY/QoQ. The MSME segment (~77% Mix) grew by 26/7% YoY, with growth picking up in the Micro enterprise loans (MEL) segment (+28/9% YoY/QoQ) and SME growth at 24/4% YoY/QoQ. In the wheels portfolio (~13% Mix), CV growth was subdued at 2/-1% YoY/QoQ (intentional), and 2-Wheelers grew by 15/2% YoY/QoQ. The salaried personal loans growth segment was healthy, growing by 24/6% YoY/QoQ and now constitutes ~9% of the portfolio.

* Financial Performance: NII missed our estimates and grew by +44/2% YoY/QoQ, despite a sharp margin compression QoQ (calc.). NIMs (calc. on AUM basis) stood at 8.1% vs 8.7% QoQ. Non-interest income growth was strong at 2/14% YoY/QoQ, primarily due to strong fee income growth (16/14% YoY/QoQ). Opex growth was contained at 24/4% YoY. C-I Ratio improved marginally to 34.6% vs 34.8% QoQ. PPOP grew by 34/5% YoY/QoQ. Credit costs remained stable and stood at 217bps vs 224bps QoQ. Earnings grew by 23/5% YoY/QoQ.

* Asset Quality witnessed slight deterioration with GNPA at 2.63% vs 2.58% QoQ, while NNPA remained stable at 1.7%, flat QoQ.

For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home

SEBI Registration number is INZ000161633