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

Ladies and gentlemen, good day, and welcome to MAS Financial Services Limited Conference Call, hosted by Motilal Oswal. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal. Thank you, and over to you.

Yes. Thanks, Yashashree. Good afternoon, everyone. Once again, I welcome you all to the earnings call of MAS Financial. We have with us today the senior management team of MAS Financial, represented by Mr. Kamlesh Gandhi, Chairman and Managing Director; Mrs. Darshana Pandya, Director and CEO; and Mr. Ankit Jain, CFO, and other members from the senior management team of MAS Financial. With this brief introduction, I will now hand over the mic to Mr. Kamlesh Gandhi and the management team for their opening remarks, post which we will open the floor for a Q&A. Thank you, and over to you, sir.

So thank you so much, Abhijit, and good afternoon to everyone who has joined on this call, and thank you for joining. At the outset, I will start by thanking all the stakeholders for having supporting us throughout our journey of 28 years as we cross a very important milestone of INR 10,000 crores in AUM. I think as you remember, last time, I had shared with all of you that we are striking distance away from our important milestone of INR 10,000 crores and that we could complete it in December. On a consolidated basis, we were around INR 10,200 crores, and we are very happy to share with -- the same with all of you. I'm more happy to share that this growth has been on a very fundamentally strong balance sheet, with 25 years of experience, with capital adequacies of more than 24%, with a very -- asset quality well maintained and with a diversified asset and a diversified liability mix and add to that a very prudent business model, whereby we are adequately leveraged. At the same time, we generate good CAGR on growth, we generate good return on capital employed. And that is what I personally understand, being a practitioner for more than 30 years, are the ingredients for sustainability and scalability. So we differentiate ourselves here, whereby we are on a very strong footing, as far as the fundamentals are concerned. And we are going -- as we enter the next phase of growth, we are very confident that with these fundamentals and with an attitude of always learning, unlearning and relearning, that is what I was sharing with Abhijit that at MAS, there is no sense of complacency. We understand that we have miles to go and we have to improve on so many accounts, and we are continuously working on that. So we are on a very strong fundamental, have given a very strong result over all these 28 years translating into close to a 36% CAGR and a commensurating profitability also, having utilized the capital very judiciously. As you know, we had a nondilutive growth so far. And going forward, also the capital will be used very judiciously. As all of you are aware that we also have an enabling resolution to raise INR 700 crores as and when required. If you see, our capital adequacy is very strong. So this enabling resolution is for the next phase of growth. And that, we will evaluate from time to time, the opportune time and opportune amount maybe in single or more tranches for the funds to be raised to further strengthen the balance sheet and further fuel the growth, that, too, in a very fundamentally strong manner. Without taking much of your time, if I just focus on a few of the basic aspects of our business, so as I shared with you, on the asset side, we are more diversified. We're moving towards becoming a more diversified asset company, with around -- if you see a Y-o-Y growth of 27%, if you see the working of this quarter, we have grown our AUM by 27%, profitability by 24.15%. And if you see this 27% growth, around 60% comes from our flagship product that is MSME, and the 40% product comes from other products. So we are heading towards a more diversified asset base. In terms of liabilities, we have a very strong record of more than 28 years on liability, with risk of sounding immodest, we always have a problem on how to satisfy the sanctions we have on hand rather than how to meet the liability target. But having said that, we are now more focusing with the new brands emerging in terms of diversification of liability as far as NBFCs are concerned. We are aware of the fact, and we are looking at diversifying our liability also. And within next 3 to 5 years, we'll see this as diversified as our assets. In terms of operations, we are continuously -- I always sharing with you that we are aware of the fact that technology plays a very important role in efficient operations, and we are working hard on that. And we have an internal team of more than 70 people working, including the business analyst teams. And we are, from time to time, launching various loan origination programs for various products progressively, accompanies by a very strong and a very time-tested LMS. So we have enabling technology capabilities at place to commensurate the future growth. And nevertheless, there also, we are not complacent. We are trying to [ Technical Difficulty] team, along with the help of the outside vendors from time to time. Brief on the most important aspect of any organization, the human resources. We continue to enjoy the confidence of the core team and the team at the higher level at the top and the middle level, with more -- approximately more than 500 people still with us for more than 5 years. The top core team with me since more than 25 years, testimony to the fact that we believe in growing together. And going forward, this is going to be one of the biggest enabler, as far as this company is concerned. In terms of distribution of assets, I am happy to share that we are diversifying there also. We have 2 types of distribution. One is our -- through our direct distribution to our 181 branches, touching close to 11,000 touch points and with another more than 100 NBFCs. Both of them have worked very nicely for us. While our distribution through NBFCs has been very robust, NBFCs have proved themselves to be a very efficient intermediary. But as I've always shared, our distribution -- direct distribution is growing faster than the distribution through NBFC. And hence, we will see progressively our direct distribution to be cycling anywhere close to 70%, 75% in the next 2 to 3 years. I'm very happy to share that we had declared a dividend and a bonus both for rewarding the shareholders for their commitment towards the company. We, as Team MAS, remain committed to our goal of excellence through endeavors and enhancing the stakeholders' value. We are in the process of strengthening all the aspects of the business as we enter the next phase of growth. And I'm sure that next decade will be very different on scale from what we see -- what we have seen at MAS during the last 28 years. So with this, I will request Darshana to take you through numbers quickly, and then Ankit -- followed by Ankit talking about the liability performance during the quarter, and I'll keen to take your queries thereafter. Over to you, Darshana.

Yes. Thank you, sir. Good afternoon, everyone. So we are, once again, very happy to present a robust number for Q3 financial year '24. As Kamlesh sir shared that we have crossed the milestone of INR 10,000 crores of AUM on a consolidated basis and consolidated...

I'm sorry, ma'am. I'm sorry to interrupt. There is some disturbance coming from your line. Now it is fine.

Is it okay now?

Yes, yes, yes.

Yes. So as on 31st December '23, our AUM, on a consolidated basis, is INR 10,216 crores as compared to INR 8,004 crores as on December '22, which is 27.63% rise in AUM. As far as consolidated PAT is concerned, it is INR 64.41 crores, as compared to INR 51.88 crores as on December '22, which is 24.15% increase in PAT. If we look at the portfolio configuration of the parent company, our AUM as on December '23 is INR 9,672 crores, which is 27.16% increase in AUM on a stand-alone basis. So it was INR 7,606 crores in December '22. If we look at the configuration, MEL and SME contributes around 80%, two wheels is contributing 14%, and SPL is around 5.44%. So MEL portfolio has grown by 15.03% from INR 3,777 crores to INR 4,344 crores. SME loan, there is a growth of 21.46% from INR 2,840 crores to INR 3,450 crores. Two-wheeler loan has grown by 33% -- 34% from INR 501 crores to INR 670 crores. Commercial vehicle and salaried personal loan being the lower base, now CV portfolio is at INR 661 crores, it was INR 291 crores as on December '22; and salaried personal loan is INR 544 crores. It was INR 194 crores as on December '22. If we look at the income and profitability numbers, there is a growth of 29.55% growth in our total income from INR 251.47 crores to INR 325.77 crores. PBT, on quarterly basis, has increased by 25.05% from INR 67.58 crores to INR 84.51 crores. PAT has increased by 23.52% from INR 50.55 crores to INR 62.44 crores. If we look at the 9-month numbers, income has increased by 33.17% from INR 679 crores to INR 904 crores. PBT has increased by [ 23.70% ] from INR 194 crores to INR 240 crores, and the PAT has increased by 23.58% from INR 145 crores to INR 179.70 crores. And as sir mentioned that we could maintain the quality of the portfolio, our gross stage 3 asset is 2.23% as compared to 2.17% as on September '23, and net stage 3 is 1.48% as compared to 1.47% as on September '23. And we still hold around INR 19 crores as a management overlay, which is 0.25% of our total on book asset. Now coming to the housing performance...

I'm sorry, I missed out on sharing with you on the development on Housing, which is very important. And I'm very happy to share that we could grow the housing book by 36%, as we had projected the last time. And I continue to share the confidence that this portfolio will grow by 30% to 35%, going forward, while maintaining the quality of the assets, strong capital adequacy and a very fundamentally strong balance sheet. So housing, going forward, will play a very important role in the overall growth of the company and will be contributing anywhere between 10% to 20% within the next 3 years. And we are seeing very robust growth opportunities there. And having said that, while Darshana ben will share the detailed numbers, will give the idea of the quality of the portfolio and all, but we have maintained an immaculate portfolio quality there also. So housing is going to be one of the big enablers for the overall growth of the group. Sorry, Darshana, please take over.

Yes. So our AUM and housing finances as on December '23, is INR 544 crores as compared to INR 399 crores, which is 36.50% growth in AUM. Total income on a Q-on-Q basis, it has increased by 50.57% from INR 10.91 crores to INR 16.42 crores. Profit before tax has increased by 37.05% from INR 1.80 crores to INR 2.47 crores, and PAT has increased by 39.77% from INR 1.44 crores to INR 2 crores. If you look at the quality of the portfolio, the stage 3 -- gross stage 3 asset, as on December '23, is 0.81% as compared to 0.79% in September '23. And net stage 3 is at 0.58% as compared to 0.55% as on September '23. Here also, we hold around INR 3 crore as a management overlay, which is 0.72% of our total on book assets. So this was regarding the performance in our housing financials. And now, I'll request Ankit to take you through the capital and liability management.

Yes. Thank you, ma'am, and good afternoon to all, with respect to liability management, during the quarter, we were able to maintain average liquidity of around INR 800 crores with our unutilized cash credit facility, which add to the liquidity or -- at around INR 300 crores. In addition, the company, as on 31st December, has sanctioned on hand to the tune of INR 2,000 crores through various instruments that is term loan, NCD, direct assignment and co-lending. In the last quarter, company did around INR 550 crores direct assignment transactions with various banks. And the company further has more than INR 900 crores sanctioned on hand, which will be utilized during the quarter and next year. The company aims to maintain around 20%, 25% of AUM as our book to direct assignment and co-lending. Company was able to maintain a pace with cash credit capacity of INR 1,715 crores, out of which the average utilization was 75% to 80%, and rest portion was kept as a liquidity buffer. We raised around INR 670 crore term loan during the quarter, with average maturity of 3 to 5 years, thus further strengthening the asset liability maturity pattern of the company. We are well placed or strongly placed with respect to structural liquidity for the period ended 31st December and whereby liquidity is adequate and cash flow in all the cumulative buckets is positive. The capital adequacy remains strong at 24.47%, with Tier 1 capital of 20.59% and a debt equity of 3.99x. The cost of borrowing for the quarter was at 9.86%. The cost of borrowing for the September quarter last year was 9.32%, and this increase of 0.4% is majorly because of large effect of the MCLR increased by banks. As per the current sanctions on hand through various instruments, we have already tied up for the fund requirement of the current year and part for the next financial year. And our efforts is focused towards further diversification of sources of fund and to maintain the cost of borrowing. Thank you. Now we are open for Q&A. Thank you.

[Operator Instructions] We have our first question from the line of Hardik Doshi from White Whale Partners.

Firstly, I think, on the call, you mentioned that you would raise the capital as and when required and possibly in tranches. Any kind of particular timeline that you're looking at or you thought about? Would it be in the next quarter, next 6 months, next 1 year?

So it will depend once we discuss this with the merchant bankers and we start meeting the investors. So if we get the right valuation and the right set of investors, it can be done soon. Otherwise, we can wait for the opportune time because as you know that we are already well capitalized. And the idea to have this enabling resolution is to have sufficient time to choose and pick the right set of investors for us. So it all depends once -- it has been recently passed, so we'll have the interaction with the merchant bankers on that and then meet the investors and see what will be the right time and the valuations to raise.

Okay. Okay. Just on that, you mentioned you are sufficiently capitalized and how Tier 1 is also well over 20%, so which is about the benchmark and quite comfortable. So is -- why don't we kind of wait for a little while longer before looking to raise this capital?

See, as I've shared a number of times that when we talk about capital adequacy, we usually talk on overall AUM. When we are talking about a 20% capital adequacy and a 24% in all, it is on the on-balance sheet assets. So we would like to maintain capital overall on AUM. And hence, we have taken this enabling resolution. So once we -- say, for example, in next 3, 3.5 years if we double the AUM, we will, definitely, may require capital, if we have the fundamentals of raising and keeping the capital on total AUM. And hence, we took this resolution.

Okay. But on the other side, if we look at it in terms of the total AUM and then our ROAs and the leverage, I mean, this fundamentally would kind of stop us from crossing above 20% in terms of ROE, right, just doing the math with the leverage and ROA. So is that something -- I mean, is that the -- what we are comfortable with, in like having high-teens ROE?

Yes, yes. So I think -- let me share with you with the recent changes -- regulatory changes and the dynamic regulatory changes that happens from time to time. It is always good to have some buffer in capital. And secondly, with the leverage where the lenders are comfortable and where you get a competitive rate is anywhere between 4 to 4.5x, and then we delever -- derisk to the tune of 20%. So I think we are looking at an ROAs in medium to long term, anywhere between 16% to 18%, as I look at now.

Okay. Okay. Just two more questions. One is on our MSME, SME book. Overall, the growth is now less than 20%. And if you look at the MSME or the micro SME, it's like 15%. Is there any kind of concerns that you are seeing or any caution that has caused a deceleration?

So see as I told in my opening remarks that we would like to be a well diversified asset company as we grow. And if you see that MEL and SME is growing at a very healthy pace, even on a very large scale, MEL is almost INR 4,500 crores, SME is around INR 3,500 crores and registering a 20% plus growth on SME and 15% growth in MEL, itself shows our confidence in the product. So while we have sufficient confidence in the product, but at the same time, with economy entering a phase of a steady growth now, we see the wheels portfolio and the home loans portfolio also contributing meaningfully. So we would have our focus and allocation of capital both on diversification of assets and the risk-adjusted returns. So taking all these things into account, I think we will see, as I shared, that around 10% to 15% in medium term will come from housing, or around 20%, 25% should come from wheels and the rest will come from MSME. And even in the last quarter of the total growth, 60% of the growth has been contributed by MSME. So we continue to have the confidence in our flagship product, but at the same time, we would like to diversify the assets also.

Okay. Okay. And just lastly, can you comment on my -- MSME SMEs have been seeing a pretty good asset quality cycle for the last couple of years now, and the economy is doing well. But just seeing some of the results coming out from lenders in this segment, this seems like asset quality is bottoming or maybe even inching up, what are you seeing on the ground? And how are trends for you?

I think not now, throughout the cycle and right now where the cycle looks very benign is the time where you have to be more circumspect. And MSME is a very huge market to be served. So the question is never about asset creation, but about the asset quality. And this asset quality is subjective. It cannot be good for all or bad for all. So what we have seen as a practitioner over all these years, that if you extend credit where it is due, you don't chase growth and you have a fundamental of not just determining growth but also discovering growth from time to time and holding on to the fundamentals of extending credit where it is due, I think you will have a good asset quality throughout the cycle. So now, it's a very benign cycle going on since last at least 2 years post-COVID for MSME. But the lenders have to be more circumspect right now of not looking the other way, as far as the credit filters are concerned. So it will be different for different companies, going forward.

[Operator Instructions] We have our next question from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on a decent set of numbers. Sir, the first question is, so given this fund raise now, given that our ROEs are much lesser than the growth rates that we have been doing in the last many quarters, it would be -- and given your prudence, I think it is -- I mean, it's not very far away, right, I mean given where we stand in capital adequacy and where your ambitions are and given the growth rate? So it can't be more than 1, 2 quarters away at the most.

Yes. So we would like to raise it, as I told, at an opportune time within this quarter, next quarter or maybe a quarter thereafter, but we have got a time. If we get the right -- I'll repeat, if we get the right set of investors and the valuations are acceptable, we would definitely like to add on to the capital and make the capital base strong because as a lender, we focus on making the balance sheet very fundamentally strong and raise capital ahead than what it is required. So you are right in a sense that it can be around the corner within a quarter or 2.

And secondly on this bonus issues, sir, what are the timelines for the same?

I think the record date is 22nd..

Feb.

What is out time line?

22nd Feb.

The record date is 22nd Feb, Sarvesh.

AGM is on 9th of Feb.

And the AGM is on 9th of February.

When will the bonus [ share ] be credited?

So within 7 days after 22nd Feb.

Okay.

It should be good by the end of this -- by the end of February.

Understood. Now sir, on the housing part, so we have been there for a very long time, but it was broadly sort of never contributing meaningfully to the overall sort of company's growth as such. So what has changed now that you feel that it can be accelerated at a pace much higher than the other assets, thereby contributing to a larger share of the mix of the business? So is there any changes that you see in the environment? Or what has changed while now you are saying finally that, okay, we will now grow it at a much more aggressive pace?

It's all about our readiness from the operational point of view, from understanding the demography because while we know the demography is serving our foundational product, housing is a different ball game. And if you see that we always take time for the initial INR 1,000 crores of assets to be reached because we don't believe in burning cash, we want to be profitable throughout. So we need to be much cautious about the operational cost, about the credit cost. So we initially take time to understand demography, build up the teams who can understand our philosophy. And once that is done, we can really launch ourselves for the growth what we intend to. So all these years, we were trying -- we were in the phase of understanding those things. And 2 years lost because of COVID, where it was not the right time to accelerate growth. So now we are ready -- as I said that markets were there, but now we are ready to increase our market share. And maybe at this side, market share is not really significant, but increase the [Technical Difficulty].

Ladies and gentlemen, we lost the management connection. Please stay connection while we rejoin. Ladies and gentlemen, we have the management team back on call. Sir, please go ahead.

No, so I don't know when it got dropped, but what I was telling was that like now we are ready for this type of growth opportunities are always there.

So it has got nothing to do with the change or somewhat upward movement that we are seeing in general in real estate and the business environment. It has more to do with your own internal factors why you feel that you are not ready to accelerate.

Correct, correct, correct.

Understood, sir.

See, market is too huge for our size.

Yes. And sir, finally, what we have been seeing is your AUM is growing at a faster pace than your PAT. And one of the reasons might be higher provisioning because now the mix is being changed towards your own branches and all that. So by when do we see this to be getting stable, whereby we can grow both bottom line and AUM at the same pace?

Hardly any difference. And that is very difficult to match apple-to-apple. If it is 27% growth in AUM and 24% growth in profitability, I think that much lag will happen because of the operational cost getting ready for the next phase of growth, seeing a critical mass at every phase of investment in operations, technology and other resources. So I think we are almost there. And there will be some -- or there will always be some lag between the two, if we are getting ready for the future every quarter.

We have our next question from the line of Madhuchanda Dey from MC Pro.

I have four questions. The first question is, there has been an increase in risk weightage on NBFC lending, and you have a substantial portion of your book from bank borrowing. So -- but we have not seen that impacting your interest margin so far. So I mean any color that you can throw on the same?

If you read the circular, the increase in the risk weightage for -- on lending to NBFC is in the -- other than -- is on the other than priority sector lending. So all the loans that bank lends to us is for on lending in priority sectors. So if you read -- if you understand the circular, it is...

Okay. Got it. Got it.

Priority sector lending, on lending to NBFC has been exempted. So as far as the banks are concerned, they have no reason to increase our rate of interest. But having said that, under the guise of overall increase, there is some 5, 10, 15 bps basis rise being contemplated here or there. But we are, in fact, technically and practically not affected by that circular.

So I mean there has been -- as per my calculation, there has been a slight uptick in NIM, sequentially. I mean, how -- is that correct, first of all?

Yes. Because as we move more towards retail, I think while we have seen over all these years that the direct and the indirect retail assets channel were almost close to each other in terms of NIMs, but as we grow our retail portfolio, there will be a slight difference in the NIMs, going forward. So it's very marginal uptick in the NIM.

Which means, what you're trying to say is, in fact, the impact on the ROA will be same, the NIM will be slightly higher and the cost will also be slightly higher in your direct channel, is that the correct understanding?

Right, right, right.

Okay. Okay. My other question is on your housing book. So I know that this is absolutely in the buildup phase, so we can't read much into that. But here, what we see is the growth in the loan book is much ahead of the growth in profit. So is it cost? Is it provision? Because those details we don't have in your presentation. And what is the sustainable steady-state ROA of this business?

So we will share that -- the details with you. And just to give you a color on that, the profit not catching up with the growth and lagging behind is only because of the operational [Technical Difficulty].

Ladies and gentlemen, we've lost the management line again. Please stay connected while we rejoin them. Ladies and gentlemen, we have the management team back on call.