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

[Audio Gap] and a very good afternoon to all of you. We have with us from the management, Mr. Kamlesh Gandhi, who is Chairman and MD; Mr. Darshana Pandya, who is the CEO; and also Mr. Ankit Jain, who is the CFO. So I'll now hand over the call to the management, who can brief for maybe 5, 10 minutes and later, we can follow that up with question and answers. Over to you, sir.

So thank you, Sanket, and good evening to all of you. Happy to connect again. To start on an optimistic note, we are seeing a high level of normalization of activities across our borrowers, and that is reflected in our working, which will be taken in detail by Darshana ben, when she takes up the figure determination. But just to share with you on the asset side, we could increase our disbursement this quarter, so to say, we've got the opportunity to increase our disbursement given our dictum of extending credit where it is due. And that translated into a rising AUM also. And if you see the quality of the assets, we should maintain the quality at a stable level of around 1.50% of net assets of stage 3 to AUM, while maintaining a very robust buffer of 1.12% of on-book assets. We continue to concentrate on the MSME borrowers. And we are very hopeful that once the things normalize, we will be in a position to create quality assets the way we have been doing it since long at the rate of 20%, 25% growth, which we are very confident and we have very strong agendas for the same. On the distribution front, we continue to have focus on more than 3,500 centers, which we anticipate to be close to 4,000 centers by the year-end. Once the things are normalize, we'll get the opportunity to increase our distribution strength and also with more than 100 NBFCs we have been working since a decade versus our extended arm within the assets lot we create directly. On the liability front, as you know, that we are well capitalized with around 25% of Tier 1 capital. And we recently raised the INR 50 crores of Tier 2 also. That will further straighten the capital base. And we continue to command high level of respect from our lenders, evident from the fact that we could not only raise money the way we want it, but we could even reduce our cost of borrowing, depicting a very high level of respect based on the track record and the faith shown by lenders in our operations and workings they do. Moving forward, we will continue to focus on -- as I told, on creating quality assets, strengthening our distribution, strengthening our operations which should translate into a very steady 20%, 25% growth going forward. And once again, I will reiterate, we have strong enablers from them right from -- starting from self-propelling capital model, whereby we completed -- just to share with all of you, completed close to 4 years of our IPO. We went public in 2017, and we've almost doubled everything, maybe from INR 3,500 crores of AUM to a group AUM of close to INR 5,800 crores. Everything has grown through internal accruals, while maintaining a very strong capital adequacy is testimony to a very efficient use of capital and robust operations and profitable operations. And I'd just like to add one more thing here that we have increased our book value at a CAGR of 15% even during this torrid time. I think this was the most challenging time of our lives for all of us. And within this also, we could increase our book value at a CAGR of 15%, mainly through internal accruals and could maintain a very healthy ROAs. So the strategy remains the same: to focus; to create quality assets; to make use of the best available opportunities, including the latest thing that is the fintech. We have association with many of the fintech companies of the country. We are trying to associate with them in such a manner, which helps us to create quality assets, widen our distribution reach, and at the same time, we could maintain our profitability is what our tie up with -- our aim is there when we tie up with any of the fintech. So we are trying to tie up with various fintechs in order to strengthen our distribution strength, but not to compromise on what we do, that is creating quality assets profitably. So with this for -- to do the number crunching for you, I will request Darshana ben to take it forward on the numbers as to how it looks like.

Thank you, sir. Good evening, everybody. So now coming to the numbers, as sir shared that our AUM has grown from INR 5,160 crores last quarter to INR 5,485 crores this September. So -- mainly -- the main products are micro enterprise loans and SME loans, which is 89 -- which is contributing around 89% of the total portfolio and 11% is coming from bills. If we compare the numbers with last September, the main growth is in SME products. It has grown by 21.83% and -- which has been compensated by -- the growth has been compensated by micro enterprise loans. So it is down by 8.06%. In terms of percentage, CV, commercial vehicle looks 51% rise, but since the base is low. So in amount, if you look at the -- there is a rise of INR 78 crores. Two-wheeler more or less remains same. So that is the configuration of our AUM of INR 5,485 crores. Looking to the operational figures, total income has -- on a quarterly basis, has grown by 2.94% from INR 152 crores to INR 156 crores. Profit before tax has grown by 12.92% from INR 45.63 crores to INR 51.53 crores. And profit after tax increased by 12% from INR 34 crores to INR 38.32 crores. On a half yearly basis, profit before tax has increased by 6.88% from INR 94.55 crores to INR 101 crores. And PAT has increased by 6.15% from INR 70.80 crores to INR 75.15 crores. Asset -- regarding the asset quality, gross stage 3 asset, if we compare it with June numbers, then it was 2.21% in June '21, now it is 2.30%. And net stage 3 asset is 1.8% as compared to 1.74% in June '21. Our restructured book stands at around INR 29 crores, which is 0.54% of the total portfolio. And as of March, it was around INR 15 crores. We hold special COVID provision of INR 49 crores, which is 1.12% of our on-book assets. So this was regarding the finance company. Now coming to the Housing Finance numbers. The AUM as of September is now INR 300 crores as compared to INR 281.72 crores last September. Total income has increased by -- has come down by 1.15% from INR 9.33 crores to INR 9.22 crores. PBT has increased by 25.75% on a quarterly basis from INR 1.50 crores to INR 1.89 crores. And PAT has increased by 26.44% from INR 1.17 crores to INR 1.48 crores. On a half yearly basis, PBT has increased by 1.44% from INR 2.91 crores to INR 2.95 crores and PAT has increased by 3.68% from INR 2.22 crores to grow INR 31 lakhs. Regarding the quality of the asset, gross stage 3 asset stands at 0.65% and net stage 3 asset 0.46% as compared to 0.59% and 0.42%, respectively, last June '21. Here also, we hold COVID provision of around INR 3 crores, which is 1.2% of on-book assets. And in our Housing portfolio, the restructured book stands at 0.91%, which is INR 2.72 crores in terms of amount. So this was regarding the numbers. Now I request Ankit sir to take you through the liability management.

Thank you, ma'am. Good afternoon all. To further elaborate on the capital and liability management, which in the current quarter, the company through its efficient liability management was able to maintain liquidity buffer of around INR 875 crores and unutilized cash credit facility of around INR 385 crores. In addition to this, the company has sanction on hand to the tune of INR 1,000 crores in the form of term loan and direct assignment. In the last quarter, company did around INR 400 crores direct assignment transaction. The company further has around INR 700 crores sanctions on hand which will be utilized during the current year. The company aims to maintain around 20% to 25% of AUM as our book to direct assignment transaction. The company has available cash credit limit of INR 1,820 crores, out of which company maintains utilization of around 70%, and rest of the portion is kept as liquidity buffer. Further, company raised around INR 375 crores term loan during the quarter. This has helped us to further strengthen our asset/liability maturity pattern. Company raised around INR 100 crores NCD in the form of MLD during the quarter. Company also did a PTC transaction of INR 90 crores during the quarter. We have assessed our structural liquidity for the period ended 30 September, 2021. And based on the assessment, there is no negative impact on liquidity, and cash flow in all the committed buckets remain positive. Our capital efficacy remains strong at 25.62%, with year 1 of 24.02% and debt equity at comfortable level of 3.30x. Most importantly, we were able to -- we were -- the cost of borrowing remains stable at 8.7% as compared to June quarter, which was 8.72%. And if you compare the last corresponding quarter, it was around 9.22%. So this is about the capital liability management. And I hand over the podium to Kamlesh sir for closing remarks.

Thank you, Darshana ben and Ankit. So this was from our side on asset distributions and liability and the numbers we shared with you. Before I hand over for any of the question and answers from your end, let me reiterate our commitment on our Housing Finance space that we remain committed for a very strong growth prospects there. And we are confident of having a growth rate of 25% plus from our Housing Finance company also and which will start contributing very positively now onwards. And we, as a company, are looking at a 3-year horizon from now. As such, we always look beyond that. But as a first phase, we are looking at a 3-year horizon and we also see that the opportunity what we see around and with the very strong enablers we have, I think we are targeting at close to INR 10,000 crores within next 3 years, give or take a few thousand crores here or there, or if you target INR 10,000 crores a quarter or 2 years here and there. But with the priorities being quality, profitability and then the growth. But we are confident of achieving all these 3, given the optimistic view that we have come back to the normal and MAS has the capabilities and the niche expertise to demonstrate this type of results. So with this, I would like to hand over for any of the question-answers from your end.

[Operator Instructions] First question is from the line of Shubhranshu Mishra from Systematix.

First question is what percentage of the AUM is contributing by the partner NBFC? And among them, what will be the concentration, like how many NBFCs in total we have? And what would be the top 10 and top 20 NBFCs contributing to? The second question is on the liquidity. Given the fact that we are in a low interest rate [regime], there's enough liquidity. Why are you still holding so much of cash on our balance sheet? And why are we utilizing cash credit facility generally as that's an expensive form of borrowing? These are my 2 questions.

See, of the INR 5,500 crores of the AUM, around 55% comes from our partner NBFC. The top 20 borrowers of the company constitutes around 22% of the AUM. And on the front of the liability management, let me tell you that cash credit is among the most efficient source of liability for us given the WCDL component. Now with the latest RBI guidelines, around 60% has to be in the form of WCDL, which is a carve-out of CC and which is linked to a short-term [indiscernible]. And if I share with you our WCDL rates, it ranges anywhere between 8%, 8.75%. So this has been -- and this is a carve-out of the CC so it does not create any ALM in any sort of nature. So this becomes one of the most efficient source of liability, and that has contributed to an extent to reduce our cost also. In terms of maintaining cash this quarter, I think we all were optimistic, but not that confident that we are absolutely out of this COVID crisis. So we thought that it would be only prudent to bear the bad terms cost on the profit, but it would be sufficiently liquid. So we have kept this cash equivalent, which on an average, when Ankit is talking about INR 875 crores, it's as on 30th September. But if you see the average cash maintained during the quarter is around INR 675 crores, which is down by INR 350 crores as compared to the corresponding 2 years. So slowly, we are reducing the cash that we'd like to keep as buffer, given the situation is improving.

Right. Sir, what can we expect towards the end of the year or starting FY '22 in terms of the liquidity buffer?

I think we'll be happy holding, as shared earlier, our liability management buffer, we worked around 2 things that we keep around 30% to 40% of unused CC. So if you take around INR 2,000 crores, around 30% to 40% of that is anywhere between INR 600 crores to INR 800 crores, take a mean of INR 700 crores there and another around INR 300 crores to INR 400 crores would be good enough. But can't predict, it looks like that should be the ballpark figure.

[Operator Instructions] The next question is from the line of Deepak Agarwal from Axis Mutual Fund.

My question was on the BharatPe deal in terms of the -- as I understand from the article that we have then closed it to INR 100 crores. Can you share broader in terms of how the deal is structured, the tenure of the deal? So whatever you can share on that.

Yes. So as you know, BharatPe is a payment platform and engage with so many retailers in the country. And that is in alignment with our MSME segment. As you know, that we have been lending to this segment since long. And BharatPe, having access to the data from all these retailers, was a very obvious candidate for some synergy. So we started using that platform, and we started with a limit of around INR 100 crores, which will cover more than 1,000, 1,200 plus retailers. And it is with full recourse to BharatPe, there's around INR 4,000 crores of capital. So we are more confident to try this model out when we are getting the complete recourse on the -- from the platform as well as we would have got an access to a lot of retailers which we they are working with and understand the working of the platform also. And the tenure is around 12 months?

13 months.

Tenure is 13 months.

And sir, in terms of -- so in case of defaults and all, so everything falls back up in BharatPe, right, sir?

Yes, yes. It is retail with 100,000 recourse on them.

The next question is from the line of Madhuchanda Dey from MC Research.

Yes. Am I audible?

Yes, yes.

Yes, I have 2 questions. One is, you mentioned that you would like to take the assets under management to INR 10,000 crores. Is this including the assets of the Housing Finance company? Or is it for the stand-alone MAS Financial?

Maybe I think Housing Finance current stage from INR 300 crores, we expect that to contribute anywhere between INR 700 crores to INR 900 crores within next 3 years. So this INR 10,000 crores, what I mean will be as a combined entity MAS.

Okay. So from the current close to INR 5,500 crores, you wish to go to INR 9,000 crore ballpark. That is the trajectory that...

Within next 3 years, which will roughly translate into a 23% to 25% growth, our customary trajectory of growth.

I mean that excludes FY '22 because so far, FY '22, the growth has been pretty lackluster.

So that is what I was talking. This is an intent of the company, and that is what I said in the opening remarks that if you pack INR 10,000 crores maybe quarter here or there. But the idea is that over the next 3 years, it is September '22 -- sorry, '21. By September '24, we should be close to INR 10,000 crores, which will translate into a CAGR of anywhere between 23%, 25%.

Okay. And I mean -- see, we have seen, of course, not your direct comparison. But peer group financial companies, they have kind of highlighted a lot more optimism and improvement in asset quality compared to what you have reported so far and what you were referring to. So I mean, what is that is kind of bothering you which some of these peers are not seeing? Or is it that at the bottom of the pyramid and the small borrowers, the pain of the COVID itself is much higher. ?What is that we should conclude from this?

See, as far as peers are concerned, reaching from 4% to the levels where we are is what they are optimistic about. But if you see MAS, we had always been range-bound in the worst of the times also. So we didn't said that substantial deterioration in quality to -- and that's why improvement will also be in the same manner. If you say that we were originally between 1.5% to 2% on GNPAs and 1% to 1.5% in NNPAs that has shifted to 0.5% on the higher side from 2% to 2.5% on GNPAs and between 1.5% to 2% of NNPA. I think working in this sector, and if you compare these numbers with any of them, will be only -- will give you a fair idea on the quality of the assets that we are hopeful of. And we are -- and we think that this has been -- this will be a very good performance on the part of our borrowers to maintain at this level. Hello?

Okay. Okay. Yes, yes, yes. Got it. Got it. And I mean, any color on the kind of interest margin, delinquency growth that you see in the second half of the year?

If you see, we continue to maintain a very strong business model with close to around 6.5% of NIMs and then translating into anywhere between 2.8% to 3% of ROA. That is what we would like to -- this is what we'll continue and might improve with a bit lesser burden of carrying cash. So it will be a fair assumption that we'll be in a position to maintain anywhere between 2.8% to 3% of ROAs.

Okay. And in terms of growth?

Growth. Second half growth, I think, from current INR 5,500 level, we should be anywhere between INR 6,000 crores to INR 6,250 crores by March. This is what we have the hunch right now.

And one last question, which is compared to the pre-pandemic scenario, which are the stress pockets which still makes you uncomfortable? Or if you just can tell us very simply what -- I mean, how many months before you see a complete return to normalcy where we can go back to business as usual?

So that I've been sharing with many of the people I've met, that once the real economy starts, we say there's a lag effect for lenders because the way we need to observe the consistency in the real economy working. So I think within the next 2 quarters, we'll be in a position to make out the real sectors, which have come back to normal or which other ones will take time, or which are the ones who have really suffered badly. So I think these 2 quarters should make it fairly clear.

Okay. So I mean you actually see real recovery from FY '23 first quarter. Is that a correct understanding?

Yes. But it is in a phase manner. The real recovery in the sense that pre-COVID recovery as a lender, our stance will be to come back to the normal growth rate of 25% plus from Q1 '22-'23. But anyhow, as I've shared with you that if we end up anywhere between INR 6,000 crores to INR 6,250 crores, we'll be at 12% to 15% growth this year also.

[Operator Instructions] The next question is from the line of Sagar Jethwani from Phillip Capital PMS.

Sir, any thoughts on higher OpEx to NII ratio? How do you see that going forward? Any comments there? And secondly, what was the rejection rate during the quarter?

See, to be honest, higher OpEx to NII ratio will be like this time because that is the kind of normalcy of operations. When we talk about last quarter and the quarter before this, the operations were not normal. So it will be anywhere between 20% to 30%. That is what we presume. And it all depends upon the configuration of the product from time to time. So we are more concentrating on the ROAs that every product will generate. And as a group level AUM, we target an ROAs, as I shared earlier, of around 3%. And reduction ratio was -- is usually around 40% to 45% in our business because it might be marginally higher during these 2 quarters because of some stringent norms that we would like to implement. And even for next 2 quarters, we'll be very watchful, but that might be close to around 55%.

[Operator Instructions] The next question is from the line of Ankit Gupta from Bamboo Capital.

Sir, on the macro enterprise loan side, how are your customers dealing with now? Because MSI has been one of the worst impacted segments. And do we think the worst is behind them and things are improving on the ground?

Definitely. That is what we are saying. There is recovery rate from around low 70s -- in low 70s have improved now to close to -- between 85% to 90%. And if you see at the sector level, the net NPAs hover around 6%. So there is a stark improvement in the last 2 quarters. And if things remain normal, I think this should improve further. Because these are the borrowers who constantly require money for their working capital. These are all very small borrowers who take loans anywhere between INR 50,000 to INR 100,000. The cycle is around 24 to 30 months. We can't expect the capital formation of the equal size within 24 to 30 months. And there's growth also. So to fuel that growth and the cycle what they have of borrowing, they need to borrow continuously. So they'll not like to default. So with normalization of activities, I think we should see, within next 2 quarters, still more improvement in this sector.

Sure, sure. And sir, on your target of INR 10,000 crores even over the next 3 years, which segment do you think will be the major driver of growth? Post this COVID experience, as a company, will we like to give more emphasis on the macro enterprise loan or we will shift more towards SME, housing, two-wheeler and commercial vehicles?

See, more or less, the configuration will remain the same. MSMEs, we would like to club the MSME segment, that is MEL and SME, which is currently around is 88%. If it increases -- in the wheels portfolio once the things normalizes, we might see around 80% coming from our MSME sector and 10% -- 20% coming from wheels. And if you currently -- if you include housing, housing can contribute another 10%. So it will be 70%, 20%, 10%, so to say.

Sure. So our focus will also continue to -- towards funding these NBFCs which are micro enterprise loan segment and SME will also grow. So it's not that we'll be focusing more on SME loans with a direct loans to the customers instead of macro enterprise loans?

We believe in extending credit where it is due and as and when we get the opportunities. That's why I told that we club MSME now, that is micro enterprise loans and SME. It all depends upon what opportunity we get in the marketplace and which is the best distribution model, be it distributing through our 5,000 centers, which we are slated to increase to or maybe through -- distribution through around 100 NBFCs. The idea for us is an efficient last mile delivery of credit, which creates a win-win situation for the borrowers and all the intermediaries. So we have been constantly monitoring this, and we'll be aligning our activities with our aim to create a quality portfolio and a win-win situation for all of us.

[Operator Instructions] The next question is from the line of Sagar Jethwani from Phillip Capital PMS.

I hope this COVID goes off. But in any situation, god forbid, if the cases start rising again, or maybe if they are up and down somewhere in range, when do you decide and how do you decide that, yes, we should kind of stringent our underwriting process now, and we should like be a little relatively lenient in terms of lending or push the credit? So how do you decide that? Are there any parameters in place?

So just to share with you, we have been lending since 25 years, and this has been a part of our business activities that nothing remains constant. There are geographical crises, there are factors pressures or some unprecedented situation like COVID. So we have -- we reward on the formula of extending credit where it is due. Understand the customer, understand the micro, understand the macro situation on an ongoing basis and then calibrate our credit risk from time to time. So this is a very continuous exercise. Since COVID is so pervasive that everybody knows that. But if you ask me as a lender, we come across this situation on a daily basis, where we need to calibrate things on a very regular -- constantly in order to achieve our goal of extending credit where it is due. It's a very regular exercise for us.

[Operator Instructions] Next question is from the line of Prashant Shah from Serum Institute.

Sir, so far, in the last few calls that we have been discussing, you were always around...

Prashant, you're not clearly audible.

See, in the last few calls, you have been very cautious in terms of your growth guidance and in terms of your approach to lending. What gives you confidence in this -- after this quarter to say that we can go back to doubling our AUM in the next 3 years? That's my basic question right now.

That confidence stems out of the fact that we are optimistic to go to the pre-COVID levels in terms of maybe economic growth or the real economy functioning. And if you see our last 25 years growth trajectory, you will see that we have always doubled our AUM every 3 to 4 years, which gives us a growth rate of anywhere between 20% to 25%. So it's very simple, pre-COVID times, pre-COVID growth.

No, I get that sir, that your track record has been -- there's no question on your track record. My question was pertaining from the perspective of what -- how have things changed on the ground that you have got the visibility to say that we can go back to the pre-COVID growth again?

Yes, yes, definitely. And as I shared in my press release also that -- I started this press release with an optimistic note, which I experienced at the ground level, that among our borrowers, we are seeing a lot of normalization of activities. We are seeing a lot of demand coming from them. And on the contrary, a few of them expanding their capacity. So we are seeing a lot of positivity all around. And we presume -- and by talking to them, we are confident that they will be growing once again or even faster than what they were doing earlier. So this turns out of the fact that the information what we get from the ground level is very, very positive.

Okay. And on the context of the growth that you're doubling, you've mentioned about growth coming from which segments. But will this growth also include your geographical expansion or continue to focus on these core areas only, where you are present right now?

The geographical expansion will happen because we are -- from our current INR 3,500 crores reach, we'll be close to INR 4,000 crores by year-end. And the equivalent...

In the same areas or you're looking to expand into newer areas also is what my question?

See, there are a few states out of -- we work in the Western side and 2 states in South. In these 6 states, we'll be in a position to penetrate more. And maybe we might add a state or two more the next year.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments.

So thank you, everybody, for joining this conference and hearing us patiently. I would like to once again reiterate on behalf of team MAS that we remain committed to our mission of excellence through endurance, and we'll try to add value to all of our stakeholders, as shared with you earlier. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of Batlivala [Audio Gap]