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Collection efficiency at 95%; cautious on growth

* MAS Financial Services (MASFIN) reported 6% YoY higher PAT to INR365m (est. INR374m) in 4QFY21. The 14% miss on operating profit to INR575m was due to higher-than-estimated financing costs, coupled with higher operating expenses (est. 18%). Lower-than-estimated provisioning of INR75m (55% below our estimate) led to in-line PAT. It posted 20%/16%/20% decline in total income / PPOP / PAT in FY21.

* Overall earnings and balance sheet growth are muted due to the cautious approach adopted by the management. We cut our estimates for FY22/FY23E by ~9% and expect RoA/RoE at ~3.3%/14%. We maintain Buy at INR1, 010 (3.8x FY23BVPS).

AUM picks up sequentially; on-book spreads contract

* Disbursements improved QoQ. As a result, consolidated AUM increased 6% QoQ (down 10% YoY) to INR57b. In the loan mix, the share of Micro Enterprises declined 500bp to 55%, offset by similar gains in SME loans to 35%. The share of Balance Sheet loans fell sharply to 25% from 33% QoQ. However, the company has DA sanctions worth INR10b.

* Yield on loans (calculated) fell ~112bp QoQ to 12.3%. While this was offset by an 88bp decline in CoF, overall spreads contracted 24bp to 4.9%.

* As of Mar’21, liquidity stood at INR10b (excl. CC line sanctions of INR3.3b). Furthermore, the company has INR10b worth of term loans, NCDs, and direct assignment sanctions in hand.

Collection efficiency near pre-COVID levels; GNPL ratio at 1.9%

* Collection efficiency (CE) was maintained sequentially at 95% in 4QFY21. The GS3 ratio now stands at 1.9% v/s 1.7% in 3QFY21 (proforma). CE stood at 92% in April, with the management expecting a further drop in May.

* MASFIN’s total COVID provisions now stand at INR562m (1.4% of loans).

* Over 0dpd loans increased 5bp QoQ to 6.28% in 4QFY21.

Other highlights

* The average ticket size of SME loans fell to INR3.47m from INR5.6m QoQ.

* HFC subsidiary – AUM has been flat (~INR2.8b) for the past nine quarters; the GS3 ratio (proforma) stood at 36bp (stable QoQ).

* The tier I ratio stands at 24.81%. 4QFY21RoTA is stable QoQ at 3%.

Key highlights from management commentary

Once the pandemic situation normalizes, it would return to the 20– 25%/30–35% AUM growth guidance for standalone/HFC. Disbursements for April/May stand at 25% of the normal run-rate.

Valuation and view

MASFIN operates in a tough operating environment, with large exposure to micro loans / the MSME sector. Thus, asset quality and business growth are key monitorables. Historically, the company has managed liquidity well, with higher sell-downs. We like MASFIN’s focus on profitability over growth. In this environment, growth is likely to remain muted. We cut our estimates by ~9% for FY22/FY23E. We maintain Buy, with TP of INR1,010 (3.8x FY23E BV).

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