Buy MAS Financial Services Ltd for the Target Rs.395 by Motilal Oswal Financial Services Ltd
Scaling up with prudence and profitability
We attended the analyst meet of MAS Financial (MAS), where the company presented its Vision 2036, highlighting its key growth drivers, the scale-up of its housing subsidiary, and its focus on building a strong foundation for sustainable growth while prioritizing risk management and profitability.
* MAS Financial has articulated Vision 2036 of scaling its AUM to INR1t (20- 25% growth) while staying anchored to its long-standing philosophy of compounding with prudence, combining growth with strict risk discipline, profitability and balance-sheet strength.
* The SME franchise has been positioned as the primary medium-term growth engine, supported by India’s INR30t formal credit gap. MAS is targeting 20-25% sustainable SME growth through specialized branches, cash-flow based underwriting and a calibrated increase in ticket sizes as relationships mature.
* Retail lending, led by two-wheelers, used commercial vehicles and microenterprise loans, is expected to provide volume-led growth while gradually shifting the portfolio mix toward higher-ticket, asset-backed loans, improving portfolio resilience and risk-adjusted returns over time.
* The NBFC partnership platform (Retail Asset Channel) remains a key structural differentiator, having delivered over INR300b of cumulative loans with loss ratios of less than 0.5%, enabling scalable off-balance-sheet growth with tight control over origination, collections and asset quality.
* The affordable housing subsidiary (MRHMFL) is emerging as a meaningful value creation lever, targeting 30-35% AUM growth to reach INR100b over medium to long term, ROA of 2-2.5%, RoE of 15% and a stated intent to pursue an IPO within five years, with housing targeted to contribute around 15% of consolidated AUM over the medium term.
* From a capital perspective, MAS plans to maintain capital adequacy of at least ~20% and leverage of ~4.5x while targeting ROA of 2.75-3% and ROE of ~15-17%, striking a balance between growth and return discipline. The company intends to run 20-25% of AUM off the balance sheet through direct assignment and co-lending to optimize capital efficiency and accelerate AUM scaling.
* Management has indicated that the next equity raise is likely only after the balance sheet reaches INR200-220b of AUM, until then growth is expected to be funded largely through internal accruals, reflecting the current capital comfort post QIP.
* We estimate ~21% PAT CAGR over FY25-28, with RoA/RoE of 2.9%/15.5% in FY28. We reiterate our BUY rating on the stock with a TP of INR395 (based on 2x Dec’27E BV).
SME: Capitalizing on India’s MSME credit gap
* MAS is strategically positioned to capitalize on India’s large MSME credit gap, where total credit demand significantly exceeds formal supply, particularly among medium enterprises and rural borrowers.
* The company’s diversified product suite, including collateral-backed loans, supply chain finance, business loans, and its emerging embedded finance offering, enables it to address varied customer needs across ticket sizes and risk profiles. Embedded finance enhances scalability by leveraging merchant transaction data to provide quick, digitally enabled working capital.
* The company targets 20-25% growth in SME lending over the medium term, driven by a large and expanding market, government initiatives such as GST, Udyam, and digitalization, as well as gradual expansion in loan ticket sizes, partner-led sourcing ecosystem and geographic reach.
MEL and Wheels: Retail franchises powering the next phase of growth
* Retail franchises are set to drive the next phase of growth for MAS, anchored by its strong MEL franchise. Contributing over ~40% of the loan book, this segment forms the company’s core earnings and risk engine, delivering high risk-adjusted yields of 17-24% and ATS of ~INR100k. ? Two-wheeler and used commercial vehicle lending are becoming its core secured growth engines, offering strong demand visibility, full collateral backing and rapid portfolio churn.
* The retail portfolio is steadily moving toward higher-ticket, asset-backed loans, supported by repeat business from small transporters and first-time vehicle owners, which improves stability and risk-adjusted returns.
* Salaried personal loans add diversification and high-yield growth at lower ticket sizes through a largely digital sourcing model, while large untapped geographies provide a long runway for retail expansion.
Retail asset channel: The extended distribution arm
* MAS’s Retail Asset Channel leverages over ~200 NBFC partnerships as an extended distribution network, combining local reach, relationship-driven sourcing, and efficient collections.
* Strict onboarding and robust operational controls, including tranche-based funding, audits, and MIS monitoring, ensure asset quality. The model has delivered ~INR300b in cumulative disbursements with losses under 0.5%. While NBFC-sourced loans currently account for ~34%, MAS is gradually scaling its direct retail lending for greater control and growth.
MAS Rural Housing and Mortgage Finance Company (MRHMFL)
* Its housing subsidiary MRHMFL is building a differentiated affordable housing franchise focused on rural and semi-urban borrowers, offering a full suite of home loans and developer finance through an expanding, asset-light branch and partner network.
* The platform combines granular retail housing loans with higher-ticket developer finance, supported by diversified sourcing, digital origination and deep penetration in underserved geographies, enabling scalable yet wellcontrolled growth.
* With AUM of about INR8.6b growing at over 20% and a medium-term growth target of 30-35%, alongside RoA of ~2-2.5% and ROE of ~15%, MRHMFL is positioned to become a meaningful value driver for MAS, with IPO optionality over the next five years.
Valuation and view
* MAS has consistently demonstrated well-calibrated operational resilience, supported by disciplined execution across business cycles. Its diversified portfolio mix, prudent risk management, and focused growth strategy continue to underpin stability and profitability. The company effectively leverages its strengths on both the business and governance fronts, backed by a stable management team and a significantly high promoter holding. With steady margins, a clearly defined growth trajectory, and sustained asset quality, MAS is well-positioned to remain a steady long-term compounder.
* We model FY25-28E CAGR of 19% in standalone AUM and 21% in PAT, with RoA/RoE expected at 2.9%/15.5% by FY28E. Earnings quality remains strong, supported by risk-calibrated AUM growth despite stress in the MSME ecosystem. We reiterate our BUY rating on the stock with a TP of INR395 (based on 2x Dec’27E BV). Key risk: a macroeconomic slowdown that could weaken loan growth and asset quality.
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