Buy MAS Financial Services Ltd For Target Rs.330 by Motilal Oswal Financial Services Ltd
Prioritizing asset quality over loan growth in a tough macro
AUM grew ~21% YoY; minor deterioration in asset quality
* MAS Financial Services (MASFIN)’s 3QFY25 PAT grew ~25% YoY to INR781m (in line). Net total income was up 31% YoY at INR2.1b (in line), while opex grew ~44% YoY to INR673m (in line). PPoP grew 25% YoY to INR1.4b (in line).
* Credit costs stood at INR332m, translating into annualized credit costs of 1.2% (PQ: 1.0% and PY: 1.1%).
* The Board has approved an investment of up to INR150m in its subsidiary, MAS Rural Housing & Mortgage Ltd.
* MASFIN reiterated its medium to long-term AUM growth guidance of ~20-25% with a continued focus on maintaining healthy asset quality. Its SME segment is expanding at a faster pace than micro-enterprise loans (MEL), aligning with the company’s strategic objective. The company targets to reach an AUM of ~INR200b within the next three years.
* We estimate a ~25% PAT CAGR over FY24-27, with RoA/RoE of ~2.9%/16% in FY27. Reiterate BUY with a TP of INR330 (based on 2x Sep’26E BV)
AUM rises 21% YoY; strong growth in personal loans on a small base
* Standalone AUM rose ~21% YoY to ~INR117b. AUM of micro-enterprise/ SME/2W/commercial vehicle loans grew ~8%/24%/21%/47% YoY. Salaried personal loans grew ~69% YoY to ~INR9.2b. ~35% of underlying assets in the standalone AUM were through partner NBFCs. The MSME segment contributed 60% to incremental YoY AUM growth.
* The company has provided guidance for an AUM mix of ~60% from SME, ~25-30% from Wheels, and ~10% from both secured and unsecured personal loans. We model AUM CAGR of ~22% over FY24-27.
Sequential expansion in spreads and NIMs
* Yields (calc.) rose ~10bp to ~14.8%, while CoF (calc.) declined ~5bp QoQ to 9.3%. This resulted in ~15bp QoQ expansion in spreads to ~5.5%.
* NIM (calc.) expanded ~10bp QoQ to ~7.25%. Reported CoF was stable QoQ at ~9.85%. We model NIMs of ~6.7% each in FY26/FY27 (vs. ~6.5% in FY25E).
Increase in 1+dpd; minor deterioration in asset quality
* The 1+dpd increased ~10bp QoQ to 6.7% in 3QFY25.
* GNPA/NNPA ratios (basis AUM) rose ~5bp each QoQ to 2.4%/1.6%. PCR on Stage 3 assets declined ~120bp QoQ to ~38%. The company has seen a minor uptick in GS3 due to the weak macroeconomic environment.
Other highlights
* Avg. ticket size of micro-enterprise loans increased sequentially to ~INR59k (PQ: ~INR54k).
* RoTA declined ~10bp QoQ to ~2.9% in 3QFY25. HFC subsidiary:
* MAS Housing reported AUM of ~INR7b, up ~29% YoY.
* GS3 rose ~3bp QoQ to ~0.95%.
* The company continues to pursue the same fundamentals and expects HFC to grow between ~25-30% in the medium term.
Key highlights from the management commentary
* MEL, where customers are over-leveraged and vulnerable, is exhibiting weakness.
* At the industry level, PL has 90dpd ranging between ~4%-8% and loan losses ranging between ~3%-7%. MASFIN has implemented sufficient guardrails to protect itself from such risks.
* A significant portion of the company’s liabilities is MCLR-linked, which will result in a lag in the transmission of interest rate cuts to its cost of borrowing.
Valuation and view
* We model a standalone AUM/PAT CAGR of 22%/25% over FY24-FY27E with an RoA/RoE of 2.9%/16% in FY27E. The company has maintained a high earnings quality, backed by healthy AUM growth.
* MASF has developed niche expertise to serve the MSME market and continues to demonstrate reasonably healthy loan growth momentum, while its asset quality is perhaps the best among SME lending peers.
* Reiterate BUY with a TP of INR330 (premised on 2x Sep’26E BV). Key risk: Slowdown in the economic environment leading to sluggish loan growth and deterioration in asset quality.
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