Buy MAS Financial Services Ltd For Target Rs.330 by Motilal Oswal Financial Services Ltd
Healthy loan growth momentum; sequential contraction in NIM Earnings in line; insignificant exposure to agri income customer profiles
* MAS Financial’s (MASFIN) PAT grew ~23% YoY to INR1.1b (in line). Net total income rose 30% YoY to INR3.2b (in line). NIM (calc.) contracted ~8bp QoQ to ~8.3%.
* Opex grew ~24% YoY to INR1.1b (in line). PPoP stood at INR2.1b (in line) and grew 34% YoY. Credit costs grew ~70% YoY to ~INR633m (est. ~INR635m), translating into annualized credit costs of 1.6% (PQ:1.6% and PY: 1.2%).
* MASF continues to prioritize prudent underwriting and risk-adjusted growth, with asset quality remaining manageable despite a modest uptick in GNPA as its retail and SME portfolios mature. Management expects 90+ DPD to remain in the range of ~2.5-2.75%, while net NPA is likely to stay below 2%. We expect MASF to deliver credit costs of ~1.6%/~1.7% for FY27/FY28.
* Weak monsoons and drought-like conditions in select states will have limited impact on MASFIN, as drought-affected regions account for <10% of MASFIN’s portfolio and fewer than ~1% of its customers depend on agricultural income. Stringent underwriting and periodic monitoring of borrower financials should help contain potential stress and safeguard portfolio quality.
* MASF’s growth trajectory remains healthy, supported by robust credit demand and a diversified portfolio. Proactive identification of vulnerable borrower segments and calibrated underwriting measures have helped maintain asset quality, positioning the company to sustain growth while preserving risk-adjusted profitability.
* We estimate an AUM/PAT CAGR of 23%/19% over FY26-28, with an RoA/RoE of ~3.0%/15% in FY28. Reiterate BUY with a TP of INR330 (based on 1.5x Sep’28E BV)
Strong growth outlook supported by core segments and expansion initiatives
* Standalone AUM stood at ~INR160b and rose ~23% YoY/6% QoQ. Within this, AUM of Micro-enterprise/SME/2W/CV loans rose 28%/24%/15%/2% YoY. Salaried PL grew ~24% YoY to ~INR14.6b. Around ~32% of underlying assets in the standalone AUM were through partner NBFCs. MSME segment contributed ~85% in the YoY AUM growth.
* MASF targets 20-25% growth while maintaining an RoA of 2.75-3%, driven by portfolio diversification and expansion into newer geographies. The proportion of the Wheels business in the AUM mix is expected to improve over the next 2-3 years, while the housing finance subsidiary's entry into Tamil Nadu and Karnataka should drive stronger growth from FY28. The company also plans to expand its branch network to ~300 over the next two years, while improving branch productivity and preserving asset quality. We expect MASF to deliver an AUM CAGR of 23% over FY26-28.
Key highlights from the management commentary
* Wheels’ share in the AUM mix is expected to increase ~2-3pp annually and reach ~15-20% over the next five years.
* MASF intends to deepen penetration through existing branches and improve productivity before investing in newer branches.
Valuation and view
* MASF’s healthy ~23% YoY AUM growth, led by the MSME segment, underscores strong business momentum. Improving traction in the Wheels business, expansion into newer geographies, and a wider distribution network provide additional growth levers. Despite strong credit demand, we expect MASF to remain prudent in its underwriting. It proactively identifies vulnerable borrower segments and calibrates lending to emerging risks, supporting asset quality. While near-term margin pressures will remain a monitorable, its focus on maintaining RoA of 2.75-3% and risk-adjusted profitability positions the company well for sustainable growth.
* We estimate an AUM/PAT CAGR of 23%/19% over FY26-28, with an RoA/RoE of ~3.0%/15% in FY28. Reiterate BUY with a TP of INR330 (based on 1.5x Sep’28E BV).
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