MAS Financial Services Limited (MASFIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Results Call of MAS Financial Services hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shubhranshu Mishra from Systematix Institutional Equities. Thank you, and over to you, sir.

So today, we are hosting MAS Financial Services. We are joined by Mr. Kamlesh Gandhi, Chairman and Managing Director; Mr. Darshana Pandya, Director and CEO; Mr. Ankit Jain, the CFO; and members the senior management team. Over to you, sir.

Thank you, and good evening to all of you, and I wish all of you are in good health, your family, your colleagues are doing well. So happy to connect to all of you once again. As shared with you through our press release and investor presentation, once again, in Q1, also, we are focused on the -- strengthening the fundamentals mainly on centering the capital base, maintaining sufficient liquidity, high quality of assets and maintaining the provisioning buffer because of this unprecedented time and constantly engaging with the investors -- sorry, constantly engaging with our customers. So as a result of it, as I talk to you, we have more than 25% of Tier 1 capital. We have managed to maintain our asset quality at around less than 2% of net stage 3 asset at 1.72, accompanied by a very strong buffer, which is not negative when they calculate this net stage 3 asset of 1.34%. So we have a 1.3% of an additional buffer, which we practically not [ bid ] into throughout this pandemic year [ once it has been created ]. On the performance of the quarter, while -- as we all know that 2 quarters and 2 periods Q-on-Q are not at all comparable, but just to take you through the basic numbers and then it will be followed by my colleague Darshana Pandya to take you through in detail. We could register an AUM of INR 5,170 crores approximately, which is a dip of around 9% as compared to last quarter, Y-on-Y and mainly because of the collection exceeding the disbursement. And as you all know that it was a very difficult quarter for everybody where [indiscernible] practically [ does ] no business [ loan ]. And whatever we could muster was the later part of May and in June. So with that collection excluding our business plans [indiscernible] by 9%. But however, we could maintain our profitability more or less at a stable level Q-on-Q and Y-on-Y, it's close to around INR 37 crores. And as I said, we see that the quality of assets being stable at 1.17%, net tax of 1.17% of our AUM. Our focus continues to be on our [ value added ] product, that is MSME [ durables ] -- MSME [ durables ] and commercial vehicles, where MSME and like microenterprise and SME loans [ forms ] the major part of our assets under management, followed by [ durables ] and commercial retail loans. So the first, about the workings, as far as the parent company is concerned. And just to add to that on the collection efficiency, we had an average collection efficiency of 93% during this quarter, increasing every month from April to May to June. And as I talk to you, we are at close to around 96.8% in our collection at [ our efforts ], very close to our normal 97%, 98%, what we usually maintain. On the restructuring front, as I shared with you, we are in the process of accessing the financial portion of business borrowers that we work with and we'll be in a position to complete our assets in this quarter and with confidence to our policy of not rushing it into restructuring very aggressively. We would be doing restructuring in this quarter, depending upon the matters of the [ cases ] so as not to [ spoil ] the history of the borrowers who are genuinely affected by this pandemic wave. On Housing Finance, as I shared with you last quarter that in the medium term, we see Housing Finance to play an important role in the overall [ recovery ] of the group. We could register an AUM of INR 294 crores, which was a slight increase as compared to last quarter, that is [ Y-on-Y ] basis. And there also, the quality of the asset is maintained at 0.56% of net stage 3 asset and with our [ indiscernible ] almost intact of INR 3 crores, which is around 1.15% of our on book assets and a very strong capitalization of 49% because of the risk weighted -- because of the stated as to [ net stage 3 assets ] and in the class which we are working is less. So that is about the working and housing kind of -- probably based upon a contraction impact by 21%, mainly because of higher provision during last quarter being in the moratorium period. There was not much being done in the Housing Finance company. So instead of INR 1.05 crores of adding in Q1 '21, it's around INR 0.82 in Q1 '22. So there also, we have a very strong balance sheet to grow the asset once the thing normalizes. And we are very, very hopeful that something will start contributing very positively in our overall growth. So before I hand over to Darshana, let me reiterate that the company is well poised to capitalize on all the future growth opportunities because of a very strong capital base, very strong [ lab ] between management, as we shared with you. We have a liquidity for us close to INR 1,000 crores. Currently, we have a debt tie-up almost for the company here in terms of our assignment of loans and various facilities. And the distribution of the 3,500 centers and also through our past [ NDS, ] we are very confident that once the things normalizes, which I think will be sooner than later and it has already started, we'll be in a position to go back to the trajectory of our previous 25% growth, which what we've been doing since launch. And we have all the [ analysis on the page ] To take you through some detailed numbers for you to understand a nice place, I will pass it on to my colleague, Darshana, to take you through those numbers.

Thank you. Good evening, everybody. As I'm sure the numbers are in front of your press releases also there and presentation is also the further asset, but would like to take you through the key numbers very briefly. As on 30 June 2021, our assets under management stands at INR 5,162 crores, which is a contraction of 8.77% compared to last quarter, whereby SME and commercial vehicle loans has contributed positively in microenterprise loan line and two-wheeler loans have come down. So if I give you the configuration of the asset, INR 2,462 crores from microenterprise loans, which was last year INR 3,424 crores. [ SME ] loan is INR 1,813 crores as compared to INR 1,674 crores last year. Two-wheeler loan is INR 375 crores as compared to INR 400 crores last year, and commercial vehicle loan is INR 211 crores as compared to INR 158 crores last year. Total income as on June '21 is INR 148.57 crores as compared to INR 150 crores. Once again, there is a contraction of [ 7.42% ] in line with the reduction in assets under management. Profit before tax is INR 49.53 crores as compared to INR 48.92 crores last year. And profit after tax is INR 36.83 crores as compared to INR 36.59 crores last year which is more or less stable. Regarding the quality of the assets, the gross stage 3 effect is 2.21% as compared to 1.41%. And after provisioning, net stage 3 asset is 1.74% as compared to 1.14% last year. And here, I would like to mention that we have not [ counted ] of the COVID provision of around INR 54 crores, which is 1.34% of our on book assets. This was regarding the [ pandemic ]. Now coming to the Rural Housing Finance numbers. Assets under management is on Q1 '22 is INR 295 crores as compared to INR 284 crores last year, which is a slight increase in portfolio of 3.71%. Total income is INR 8.89 crores as compared to INR 8.77 crores, so just 1.41% rise in income. Profit before tax is INR 1.06 as compared to INR 1.41 crores, and profit after tax is INR 0.82 crores as compared to INR 1.05 crores last year. The reduction in [ PBT ] and PAT is mainly because of higher provisions during the -- during Q1 '22. Regarding asset quality of Housing Finance portfolios, gross stage 3 stands at 0.59% as compared to 0.36% last year. And net stage 3 at 0.42% as compared to 0.26% last year. We are also -- we had a provision of around INR 3 crores, COVID provision. It is 1.15% of our on-book assets. So this was regarding the performance during the Q1 '22. Now I'll request Ankit to take you through our capital and liability management.

Yes. Thank you. So good evening all. To further [ elaborate ] on the liability management, the company, through its efficient liability management, was able to maintain a liquidity buffer of around INR 800 crores and utilize cash limit of around INR 485 crores, which is like around INR 1,300 crores, which is the liquidity which the company has. Recently, the company has sanction on hand to the tune of another INR 1,300 crores in the form of term loan and direct assignments. In the last quarter, the company did around INR 200 crore direct assignment [ transaction ]. The company is further more than INR 1,000 crores sanction on hand, which will be utilized during the quarter -- during the year. The company aims to maintain a 25% of AUM as our book to direct SME transaction, which helped us to maintain the capability of the assets. The company has available capital facility of around INR 1,820 crores, out of which the company maintained utilization level of around 65% to 70%, and this poses capital liquidity buffer. We successfully rolled over around INR [ 1,820 ] crores across working capital loan, which are sublimit to this capital limit. Further, company leased around INR 100 crore term loan during the year -- during the quarter. This helped us to further finance asset liability maturity pattern. The company further has more than INR 300 crores sanction on hand, which will be write during the current year. During the quarter, company ARPU raised to INR 200 crore market-linked debentures for a term of 13 months. And the company has also [indiscernible] special liquidity for the period ended 30th June, and this was assessment date [indiscernible] liquidity and the cash flow in all committed buckets remain positive. As we have told, the company's capital adequacy remained strong at 28.42% with a Tier 1 capital base of 26.54% and debt equity of 2.93x. And the cost of borrowing for the quarter works out to be 8.72% with the last year, which was around 9.24%. So we were able to reduce our cost of borrowing and we further work towards how to reduce the cost of borrowing further. Now I hand over the call to Kamlesh for further closing remarks.

Thank you, Ankit, and at this time we are open to take questions.

[Operator Instructions] The first question is from the line of Bhavesh Kanani from ASK Investments.

I had two questions, one on the growth. Now in this quarter, Q1, we saw that disbursements have stayed quite healthy, especially when we compare to similar kind of operating conditions in the year ago quarter. So should we expect the pace of disbursements to pick up from here on? That is one. And second one was on the asset quality side. It has held up pretty well, except for the absence of any restructuring during the quarter. So do we have any request pipeline as on today? And if you can quantify any such researching pipeline or requests you would have received?

So yes, we are expecting a good investment this quarter going by the June numbers, because what the majority of the disbursement was done in last 30 to 45 days. Obviously, that was the work of the earlier days and by the team. So we -- that same pace continues, we should have a good business on this quarter. And we are already witnessing the same in July, around 10 or 12 days of August. So I'm very hopeful that the disbursement will pick up. In terms of the asset quality, because we were very happy in terms of asset quality and we are engaging the previous borrowers as to their requirement. And as I talk to you, we are close to around INR 15 crores to INR 20 crores as restructuring demands, which would be regulated closely. And then we would like to -- would like to engage with them and use them to offer these [ award ] policy and the RBI directives.

Okay. And sir, if I can add one more question. Given the view you just said on the disbursements, is it right to expect AUM growing by end of the current fiscal?

Definitely, it should. Just to share with you as the team MAS. I'm not sticking my neck out on this. As a team MAS, we know that we don't have only a quarter or 2 of utilization. We utilize our [ sales ] within the next 12 to 15 quarters or the next 3, 3.5 years. What looks like a combining of around INR 5,600 crores should be close to around INR 10,000 crores, which is what we are trying to aim, provided we are not surprised by anything [ nasty ] like the way we were saying in the last 1.5 years. And definitely, this year should see a growth, maybe based on the Q1 number because when we all know that Q1 was around -- half the Q1 or more than half the Q1 was [ listed ] in the pandemic.

Okay. And lastly, sir, any update on the recovery from the [ Sambandh Finserve ]?

Outside before the agent has been appointed and the total recurring as of now, the MAS introduction I got is around INR 32 crores to INR 33 crores, which has been mined in an escrow account. And once the [ regulatory ] agreement is signed, the same will be distributed accordingly -- according to the share.

And what share would we would have in the total scheme of things?

I think around 8% -- 7% to 8%.

[Operator Instructions] The next question is the line of Shubhranshu Mishra from Systematix Institutional Equities.

I had 1 -- 2 questions right now. So one is what is the percentage of AUM sourced by partner NBFC over the last 2 to 3 quarters? And second, sir, while I look at the Housing Finance subsidiary, it has barely made any kind of profit in the last 3 orders, maybe around -- very low profit on. So what is the thought process there? I mean, should we even have that subsidiary that is not making enough profits? So these are my 2 questions as of now, sir.

To answer your first question, as you know, that around 67% of our AUM is contributed by the distribution effort to NBFC and 43% is through our 3,500 finance centers reach. So that was the proportion we have been maintaining since last 2, 3 quarters also. Let me go to question on Housing Finance subsidiary. I think that is going to contribute meaningfully in coming years. And if you see any housing finance company at this time in the sales will grow, and the profit has been in line with the AUM at around INR 200 crores, INR 300 crores of AUM. The profit has been [ driven ] -- profitable, first of all, to be profitable as a small base is [ certainly ] a challenge. And then also to maintain a return on assets of close to 1%, 1.25% even on a lower base of AUM reflects exceptional management. So we are very hopeful on our Housing Finance subsidiary. It is [ clear to stick around ] with the group very long, and it will contribute very meaningfully.

[Operator Instructions] The next question is from the line of [ Anand Ramnani ] from [ Vital ] Capital.

[indiscernible] quantification of state in case the asset for...

Your voice is breaking, so we're unable to hear you.

Yes. So just wanted to understand if you can give us some numbers on segment-wise stage 2 and stage 3 are each of our subsegments?

Segment-wise, stage 3, I think overall it is 2.21. And segments on well, we are approximately close to 3% on stage 3. That is a major part of our portfolio that is SME and the microenterprise loans are in the range of around 1.5 to 1 point -- no, that is good. And then MSE loans and SME loans, it is average of around 2% -- 2.13% in annual loans and 1.95% in SME loans that is stage 3.

And sir, what will be the stage 2 be?

Stage 2, we are -- give me a minute. I'll transfer [ you the computation ].

You can give absolute will -- I mean, we have the segment-wide data, which can be the absolute figures [indiscernible].

Stage 2 we are close to INR 8 crores, annual loans were around INR [ 40.1 ] crores, SME is around INR 52 crores. And in FID, it is around INR 7.5 crores in stage 2. So that gives you a total of 110 crores.

Sir, out of our corporate [indiscernible] what originated to partners?

Through partners, as I told, our NBFC distribution, we have around close to 7% to 8% of our book coming from our other NBFC part.

But it is fully distributed across all the segments?

No, it is around -- 40% must be coming from our NFI partners and the rest 50% coming from the MSME and SME partners.

So SME largely the book is our [indiscernible] out of 57 [indiscernible] MFI and remaining 15%, 13% SME and MSME? So that is largely -- MSME is done by maybe 80%, right?

That is the policy of the company, that we would like to have the distribution tap with the NBFCs who are in the same line of SME. While our main focus is MSME and SME, we would like to have activity of the task with all the partners who are into [ MFIs and SMEs ]

Okay. I'm still not sure if I understood the business well. What percentage of our SME and MSME book is done directly by us?

See, on product to product in annual, around 60% will be done directly by us, whereas in SMEs around 65%, because majority of the business done through partners is in MFI and SME and in two-wheelers and commercial vehicle also the same way, around 14% to 25% is through partners and the rest will be through us.

Okay. Sir, just trying to understand the business a bit better. We do a lot of this MSME and SME directly. So there is no balance sheet cushion of the partner, and yet we have been able to have very low stage 2 and stage 3. So what has helped us to get such good asset quality even in direct loans? There is no cushion of [ the partner ] NBFC.

In the retail portfolio, as I told you, that around 37% of the business it grow across products in different proportions in percentage, give or take, 5% or 10% here or there. The intervention is through our customers, whereby the credit cost is absorbed by that. So whatever the credit cost we are seeing is more or less on the retail portfolio, which has been originated by us. But how we [ work at ] -- on the metrics is that when we work with the partners, whatever the anticipated loss depending upon the product is [ there is updated in lieu of upfront in the view ]. So say for example, directly, like we're doing at 18% but through partners, I might be doing around [ 13% or 14% ]. So ultimately, what we as is to maintain anywhere between 2.75% to 3.25% ROE, depending upon the distribution we do. If you do it through NBFC, we pass on that credit for [ our subsidiary ] to the NBFC. So if they have a better [ asset ] management, they can pay on money. And if they lose more than what has been anticipated, they have to share from their profit. And in our direct, we get higher yields, but at the same time, the credit profile is higher as far as the retail tariff [ hopefully for us ]. So the hybrid of this is maintaining [ a certain level ] that will maintain anywhere between 2.75% to 3.25% of return on assets while having a fair amount of control on the quality of the assets.

Sure, sir. Sir, overall, in whatever current NPA we see, is it fair to say that 90% would be in the book that we have originated? Because any of the first [indiscernible] the partner NBFC book would ensure that most of the losses are currently -- and the NPA would be going to them? And is that the right expectation, that on 60% -- so 60% of the book is like responsible for maybe 90%, 95% of stage 2's and stage 3's [ costs ]?

They absorb it.

Yes. And sir, given that you work with NBFCs currently, the NBFCs might also be incrementally getting a lot more options to work with banks and other agents given system credit uptake has been. So are you seeing any deterioration in terms, [ maybe working with lenders ] because they're getting more options from other banks or PSUs or private sector?

It's a continuous process. This is a decade old [ investment ] with all these [indiscernible] And I've said a number of times that in NBFCs [ that do ] assets and liabilities runs down continuously. As far as markets are concerned, our relationship with the NBFC is not just like a corporate for me, but it is always like being at the last helping them to do the last lender of credit. And at the end of the day, build up the same assets, which we listed directly. So the consistency from what they get from us is unparalleled, so to say. So our expected business with them, despite of the fact that they grow, they're pulling more capital, they have more options. But the share what we want in terms of amount, we have position -- we are in a position to maintain since last 10 years, and we have seen strong traction because of our performance overall this detail. So given our consistency and understanding of the factor, we get an opportunity to partner with all the NBFCs irrespective of their [ status ].

The next question is from the line of Deepak Agarwal from Axis Mutual Fund.