Buy MAS Financial Services Ltd For Target Rs.405 by Choice Institutional Equities Ltd
Strong Growth across Segments:
MASFIN Q1FY27 outperformance was driven by stronger AUM growth observed across MEL, SME and Salaried Personal Loan (SPL) segments. Total AUM grew by 21.1% YoY / 5.5% QoQ. SPL segment’s AUM grew by 8.7% QoQ (+21.5% YoY) to INR 13.7 Bn, MEL AUM grew by 7.2% QoQ (+22.8% YoY) to INR 61.5 Bn and SME Loans increased by 5.2% QoQ (+21.2% YoY) to INR 54.9 Bn.
View and Valuation:
We revise our FY27E/FY28E PAT estimate by +9.1% / +4.3%, respectively, led by higher NII and lower operating expenses on account of improvement in operating leverage. We value MASFIN on its standalone lending business, at 2.0x FY28E ABV, indicating a 27.5% upside from the current level. We retain our ‘BUY’ rating on the stock. The stock currently trades at 1.8x/1.6x P/ABV of its FY27E/FY28E estimate.
Stronger Profitability Supported by NII and Lower Opex, Partially Offset by Higher Provisions
* MASFIN reported quarterly PAT of INR 1,046 Mn in Q1FY27, up 24.7% YoY and 4.9% QoQ, driven by resilient AUM growth, stronger NII growth and slower than expected growth in operating expenses
* Standalone AUM grew by 21.1% YoY (5.5% QoQ) to INR 151.7 Bn, primarily driven by stronger growth momentum observed in MEL and SPL segment
* NII advanced by 43.9% YoY (+15.6% QoQ) to INR 2,388Mn, driven by improvement in NIM margin and stronger growth in on-book AUM
* Average yields on Loans (calculated) improved sequentially by 17 bps to 16.9% (vs. 16.7% QoQ) led by stronger growth in MEL and SPL portfolio
* Non-interest income declined by 1.4% YoY (-19.7% QoQ) to INR 740 Mn, accounting for 24.0% of the total income
* Asset quality remained stable, led by conservative underwriting and strong collections efficiency across segments. GNPA improved to 2.58% (-2 bps QoQ) while NNPA remained stable at 1.52%
Higher On-book AUM Growth and Lower Operating Expenses to Positively Impact Future Profitabilit
MASFIN is anticipated to witness AUM and Loan growth of 24.9% and 26.5% CAGR, respectively, over FY26–28E, driven by its stronger focus on SME and Wheels Loan portfolio. The company remains focussed to drive operational efficiency by controlling growth in operational expenses. It has added only one branch in last year, whereas its Cost-to-AUM declined sequentially by 5 bps to 2.90% in Q1FY27
We have increased our NII estimate by +7.0%/ +2.4% for FY27E/FY28E, respectively, as we bake in higher on-book AUM growth. Moreover, improvement in operating leverage is forecast to lead to higher profitability, driving change in our PAT estimate by +9.1%/4.3% for FY27E/FY28E, respectively. We now estimate the annualised RoAA to remain at 3.3% / 3.4% over FY27E/ FY28E, respectively
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