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

Good morning, ladies and gentlemen. I'm Vidya, moderator for the conference call. Welcome to MAS Financial Q3 FY '23 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Sanket from DAM Capital. Thank you, and over to you, sir.

Yes. Good morning, all. Today, we are here to discuss MAS Financial's Q3 results. We have with us the entire management team Mr. Kamlesh Gandhi, who is MD and Chairman; then Darshana Pandya, who is also Director and CEO; and Ankit Jain, who's the CFO. So without much ado, I would hand over the call to Mr. Kamlesh Gandhi for their opening remarks, post which we can follow up with question and answers. Over to you, sir.

Thank you, Sanket, and good morning to all of you. I'm happy to connect to all to update you about the Q3 working of the company. I think all of you must have gone through the press release and the investor presentation. But just to give you the performance at a glance, we had a very strong quarter once again, registering a 30% growth in AUM on a consolidated basis and a growth of 32% on a stand-alone basis as far as the AUM is concerned. And as per our performance over more than 2.5 decades, this AUM is accompanied by a robust quality of assets and a good profitability. We had increase in the profit by 27% and the quality of the assets remain benign at 1.60% stage 3 of our total AUM. On the fundamental side, we remain well capitalized at a capitalization level of 24%, with one contributing almost 22% of the sale. And on the liquidity side, we had ample liquidity on hand and translated into a liquidity of more than INR 1,000 crores on hand and an equivalent sanction. And as I talk to you, we already tied up for the year and also for the Q1 next year in line with our working as far as the liability management is concerned. On the distribution front, we are now catering to potentially 7,900 centers through 149 branches. And along with our strong partnership with more than 150 of the NBFCs, whereby the contribution through our own centers has increased to 61% this quarter. In terms of -- while Ankit will take you through in detail on the liability discussion, but in terms of liability management and the interest rate, we could maintain well within the trajectory whereby we could maintain our NIMs of 7% plus. And at the same time, could have sufficient liability on hand. On the employee side, we have more than 2,000 of a strong team and growing. And with the able -- support of the technology, we think we are here to increase our efficiencies on all counts. We are happy to share that we'll be completing our first phase of our technology -- our digitization tries, so to say, by March or later by June, whereby all the processes will be digitized. And then we'll be taking it to the next stage of credit analysis through AI. But it will take its own time understanding the borrowers and then putting the system at a place in such a manner that technology is an enabler for a better credit. I'm happy to share the performance of our Housing Finance company also where we registered a 30% growth in AUM and an equivalent growth in the profitability also. We have touched around INR 400 crores in AUM as far as our Housing Finance company is concerned. And we are very confident of growing this at the same rate given the current base. So that will also start contributing very meaningfully towards the our -- total AUM of the MAS Group. So all in all, a very strong quarter, the third -- or rather the fifth quarter of growth in a row post-COVID accomplished by very strong fundamentals. We have always maintained that we -- all around the growth and development. We're not just save the AUM, irrespective of the asset quality and the profitability. So we have maintained and struck a balanced growth, that is what we call it as a real development. And going forward, we are confident of our robust compounding trajectory of anywhere between 20% to 25% of growth in AUM. And with a strong capital adequacy mainly fuel through internal accruals. So with this strong fundamentals and with the economy also back on track and slated to grow anywhere at around 6% plus, we see strong opportunity for us to be growing at a consistent rate that we have been doing over the last 2.5 decades. So it has been a performance which was quite satisfactory, but nevertheless, they are not complacent. We are working on each and every aspect to improve the quality of the businesses we do and include the stakeholders' value. Now I request Darshana to take you through some of the numbers which are already received just for the benefit of all of you, she shall take you through the key numbers, followed by Ankit's commentary on the liability management for the quarter. Darshana?

Thank you, sir. Good morning, everyone. I'm happy to share Q3 and 9 months numbers for financial year '23. We have -- in our AUM, we have now 5 products to offer salaried personal loans is a new product. And as we can see, the growth is across all the products. So AUM as on December '22 stands at INR 7,606 crores, which is 32.46% growth from last year. Last year, the AUM was INR 5,742 crores. And if we look at the configuration of the same, micro enterprise loans has increased by 31.39% from INR 2,875 crores to INR 3,777 crores. SME loans has also grown by 25% from INR 2,275 crores to INR 2,840 crores. Two-wheeler loans has grown by 38.22% from INR 363 crores to INR 501 crores. Commercial vehicle loans has grown by 26.76% from INR 230 crores to INR 292 crores. And since the salaried personal loan is a new segment, the comparative figures are not there. So the portfolio stands at INR 195 crores as on 31st December '22. And accordingly, in the same line, profit has also -- PBT has also increased by 27% on Q-o-Q and 9 months basis. And the PAT has also increased by 27.80% on Q-on-Q basis and 27.41% on 9-month basis. So profit as -- the PBT as on December for the quarter is INR 68.53 crores as compared to INR 53 crore -- INR 53.88 crores last year. And PAT stands at INR 51.25 crores as compared to INR 40.9 crores last year. For 9 months, PBT is INR 155 crores as -- INR 196 crores as compared to INR 155 crores last year and INR 146 crores is the PAT as compared to INR 115 crores for 9 months last year. We also could maintain the quality of the portfolio as shared by sir. So our gross stage 3 as on December is now 2.23%. And net stage 3 is 1.60% which was 2.26% gross stage 3 and net stage 3 is 1.60% which was 2.26% gross stage 3 and net stage 3 was 1.60% as on 30th September 2022. That's it about the final summary. Now coming to the Housing Finance company. Here also, we could cross the mark of INR 400 crore AUM which is 31% growth in our AUM from INR 307 crores to INR 400 crores. PBT also grew by 30% from -- for 9 months from INR 4.28 crores to INR 5.55 crores, and the PAT has increased by 30% from INR 3.34 crores to INR 4.34 crores. Fourth quarter, PBT is INR 2 crores, and it has grown by 50.76%. PAT is INR 1.59 crores, and it has grown by 52.75%. So all in all, we can see that we have gained a strong momentum and going forward also, we are confident to continue the same. Now I'll request Ankit to take you through the capital and liability management during the quarter.

Yes, thank you, ma'am. So good morning to all. The further little bit on the liability management, we -- to our efficient liability management was able to maintain average liquidity buffer of around INR 700 crores during the quarter and unutilized cash credit facility of around INR 400 crores. In addition to this, we have a sanction on hand to the tune of around INR 1,400 crores in the form of term loan direct assignment and co-lending. In the last quarter, we did around INR 355 crores of direct assignment transaction with various banks. And we have further -- more than INR 800 crores sanction on hand which we will be utilizing during the coming quarters. In the last quarter, we did around INR 82 crores of co-lending transactions. The company has tied up with 3 banks, namely Bank of India, Bank of Maharashtra and South Indian Bank. We aim to maintain around 20% to 25% of AUM as our book through direct assignment and co-lending transactions. Company has available cash case facility of around INR 825 crores -- INR 1,825 crores out of which we maintain utilization of -- level of 65% to 70%. And this portion is kept as a liquidity buffer. In this quarter, we successfully rolled over around INR 1,450 crores short-term working capital loans, which are sub limit to this cash rate limit. We raised around INR 670 crores term loan during the quarter. This helped us to further strengthen the asset liability maturity pattern. And we have more than INR 500 crores sanction on hand, which we'll be utilizing during the coming quarters. Also, we have assessed the structural liquidity for the period ended 31st December 2022, and based on the assessment, there's no negative impact on liquidity and the cash flow in all the cumulative buckets remain positive. As to the capital adequacy remained strong at 24.47% with Tier 1 capital of 21.21% and debt equity at 4.16x. Also to add on, we released around INR 35 crores abated debt during the quarter which qualifies as the Tier 2 capital and thereby further stressing the status structure. The cost of borrowing for the quarter was at 9.15%. And for the 9 months, from a up -- till date was 8.92%. And given the increasing interest rate scenario whereby RBI has already increased the repo rate by 2.25%, we see that in the medium term, the cost of borrowing will set at around 9.25% to 9.50%. Thank you.

Just before the question-and-answer begins, I'm happy to share that the Board in this meeting yesterday decided to declare an interim dividend of INR 1.80 per share. That is 18% dividend. So that was decided yesterday, and this is an interim dividend, and the final dividend will follow. Thank you. And we are now open for the question and answers.

[Operator Instructions] The first question comes from Sarvesh Gupta from Maximal Capital.

Congratulations on a good set of numbers. Sir, I just wanted to understand a few things on the P&L. So one is your fees and commission income and [indiscernible] been sort of moving in line earlier, but now it seems that there is some deviation in the quarter. The fees and commission income has gone down much more. And the expense seems to be where it is. So if you can throw some light on that. And secondly, again, on the OpEx, both employee and other expenses have been rapidly sort of going up slightly more than the AUM growth. So are there any one-offs related to the tech investments that you were sort of alluding to, which will be over by June quarter? Or if you can throw some light and understand what's happening on that front.

Starting on the second question, in terms of the increase in employee cost, as you see that the share of the retail assets originated through our own distribution is increasing. And as I shared, it has been in line with the expenditure we incur in originating such businesses, whereas when we originate through our NBFC partners, it is upfronted in the interest we charge. So and as you see, we have rapidly expanded our distribution base also. So currently, we are working at a potential 7,900 centers through our 149 branches. So the expansion of the branches and more share of retail assets origination through our own distribution is the underlying cost for the increase in the OpEx. In terms of fees and income, we need to see that into 2 parts. On the income side, the present commission is a function of the charges we get from time to time for setting up the limits for our NBFC partners. And as far as expenditures for fees and commission is concerned, it is the function of the commission we give for origination to various origination partners. So depending upon the business model and opportunity we get, the fees and commission income will vary from time to time. And in terms of the expenditure, it will be in line of the growth in the business on a quarter-to-quarter basis.

Understood, sir. But this -- so what can be the normalized income level as a percentage of AUM? If you can -- if there's some ballpark that we can sort of pencil in.

This is the review updates because these are the income that we get from time to time on setting up the limits for our NBFC partners. So as a ballpark can be shared with you offline. But currently, it's not much of the focus area as far as the income is concerned. This is just for better transparency and for better understanding. It has been shown as a separate line item in our P&L. But even then, based on the projections from time to time on what are the limits we are going to give to the various NBFC partners, that will decide the fees and commission income from time to time.

Understood. And on 2-wheeler loans, so now it has grown quite handsomely in this quarter, but earlier, we were sort of very cautious on this side. So has the environment changed for you or the industry in general with respect to the 2-wheeler loans, or if there's any other reason why it has grown so strongly?

There is a base effect. If you see there is an increase in sales in the 2-wheelers, both in the urban and in the -- urban areas and the interline post-COVID. So once the basic sales increases and which is now coming -- which came back to the pre-COVID levels, and now we are saying that, that will cross the COVID -- pre-COVID levels also within a quarter or 2. So that is a base effect. Because of the more primary sales, the financing opportunities are more.

Understood. Any sense on the excess liquidity that we are carrying now? I think earlier we were alluding that we would want to reduce it in the coming quarters, but it seems that we are still carrying the excess liquidity. If you can give the amount and the reason.

Strategically, we would like to carry liquidity of close to 4% to 5% of our AUM. That comes to close to around INR 400 crores -- INR 400 crores to 500 crores. And earlier was close to INR 1,000 crores has come down to INR 770 crores as shared by Ankit. And the unused cash credit limit is not a -- it's not a burden as far as the treasury management is concerned. So that's just a liability management pattern. So what was around INR 770 crores within next few quarters, we'll see that settling anywhere around INR 400 crores to INR 500 crores.

[Operator Instructions] Next question is from Harshvardhan Agrawal from IDFC AMC.

Just wanted to understand on our disbursement outlook, because if we look at our largely [indiscernible] run rate. We are sort of flattish at somewhere between INR 2,100 to INR 2,200 crores. So how should one model this? And what would be your expectation for FY '24 disbursement?

See, so our focus is to have a growth on AUM. And depending upon the product mix we have in our AUM, the disbursement growth will be the function of that. So it does not necessarily mean that the higher AUM will correspond equally to the higher disbursements. So our focus will be on growing the AUM anywhere between 20% to 25%, and the disbursements will be calibrated accordingly. So if you see on a 2 year-on-year basis, last time from a 1,600 -- approximately INR 1600 crores business spend, this year, it's close to around INR 2,200 crores. But on a quarter-to-quarter basis, it will more or less stabilize and then also will be in a position to a growth of around 20% to 25%. That is because of the various tenures of the loan we expect.

Right, Sure. Sir, next is on the liquidity part. I'm sorry, I could not get it earlier, but you said the current liquidity on the balance sheet is somewhere around INR 700 crores. Is that correct?

Yes. Yes, INR 770 crores, right?

Yes, of course.

Sir, but my understanding was in the last con call, you had mentioned somewhere around INR 600 crores is the liquidity that we carry. And if excess liquidity we have is INR 770 crores this quarter. But if I were to look at the increase in borrowing, that seems to be much lower than the growth in our advances in AUM. So I'm just not able to understand this, but my thought was, we have used some liquidity during this quarter, that is why our borrowing growth is much lower than the advances growth.

So this is on a given date. When I'm talking about the liquidity we carry, it is on the average for the whole quarter we have done. So the liquidity on a particular date will not show the exact picture of the liquidity we hold because you have the sciences might have been availed on the last date for better relationships with the lenders. So that dynamic will be shared with you on what are the total borrowings. And how was the excess liquidity used during the quarter that we had carried in earlier quarter. But strategically, we'd like to maintain a liquidity buffer of close to 4% to 5%. We are still holding some additional liquidity, which I think within next quarter or 2 will settle around 4% to 5%.

Okay. So sir, then the margin expansion on a sequential basis that you have seen, is it attributable to the product mix of the rate hikes we have taken?

It is a combination of both. Because as I've shared earlier also that we have been in agreements with the borrowers to increase the rate as and when we need to. And sir, that is the last priority because we would like to be consistent on our offerings on trade. But as you know that this was a very unprecedented situation in terms of a very conservative rate hike. So we got an outlook. We had to use that option to increase the rates and also the function of the product mix which changes on a quarter-to-quarter basis.

Sure. Sir, just one last question on our write-off. Did we have any write-off this quarter?

Yes. That is the regular [indiscernible].

If you can share the quantity, that would be helpful, sir.

Right. Over around INR 8 crores.

We have a question from Pankaj from Maricel Ventures.

Congratulations on the good set of numbers. My question was on the yield side of our book. So what was -- what is our yield for this quarter as compared to pre-COVID levels of yield?

Starting with Darshana shares the number, the focus was on NIMs and our NIM, we could maintain at 7% plus. And if you can take them to the consolidated...

So yield on -- for all the products is around 16% -- 16.5%.

Okay. And what was it for the pre-COVID, let's say, FY '20?

FY '20. Right, can we share that offline because right now, I'm not having those numbers with me.

Yes. That's fine. And do we have any further scope to increase our yield in FY '24 or in next couple of quarters, let's say?

Our focus will be to maintain the NIMs. So the yield could be the function of the borrowing cost, the operational cost and the credit cost for a particular product. So it will be line with our concept of maintaining 7% NIMs. So the yield will vary accordingly. So difficult to exactly figure that -- give the figures on the yield that we did going forward, but we will try to maintain the NIMs of around 7%.

The next question comes from Ojash WiKicha from TCG Advisory.

This is Ojash WiKicha from PGM India. So first question is on OpEx. While you have commented primarily higher prices led by I think, branches and partnerships with fintech, so if you can give a broad color in terms of where do you see this operating expense ratio settling. And also, is there any way to break this, how much is basically due to expansion of branches or partnerships, that would really help.

Right. So on the OpEx basis, on a consolidated basis with more contribution from our direct distribution, we see this settling anywhere between 2.5% to 3% factoring in the fact that we'll be continuously growing our distribution strength also and which will have a lagged effect on the efficiencies. So we anticipate that in the range which I shared.

Sure. Any broad breakup like these incremental higher expenses into categories? If you can elaborate.

Any breakup on?

I mean the higher incremental expenses into -- so you have broadly mentioned qualitatively branches, employee and partnership. So what percentage would be due to branches or due to partnership with fintechs? Any broad numbers?

It is mainly contributed through employee costs because in our business, there is hardly any cost as far as the branches and the expansion of the branches is concerned. So it will be mainly on the origination and the OpEx and the employee costs. And it will be the origination that we pay to our fintech partners and all. So it will be mostly on the origination cost part of it.

And where do you see branches number by FY '24, FY '25?