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

Ladies and gentlemen, good day, and welcome to the MAS Financial Services Limited Q1 FY '25 Results Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi. Thank you, and over to you, sir.

Thank you, Sejal. Good afternoon, everyone. I, Shreepal Doshi from Equirus Securities, welcome you all to the earnings conference call of MAS Financial Services to discuss the Q1 performance of the company, discuss industry trends and outlook going ahead. We have the senior management team of MAS Financial Services with us represented by Mr. Kamlesh Gandhi, Chairman and Managing Director; Ms. Darshana Pandya, Director and CEO; Mr. Dhvanil Gandhi, Executive Vice President; and Mr. Ankit Jain, the Chief Financial Officer. I would now like to hand over the call to Mr. Kamlesh for his opening comments, post which we can open the floor for question and answer. Over to you, sir.

Thank you so much, Shreepal, and good afternoon to everyone. I'm very happy to connect once again for the first quarter review. The quarter, in consistent to our stated objective, have registered more than 25% growth in AUM and PAT on a consolidated basis, while maintaining very strong fundamentals on all aspects, mainly asset quality, capital adequacy and liquidity. Just to give you a very brief on our working, we are strengthening our distribution network, both direct and indirect, to create an efficient and scalable distribution model, which also covers all geographies, giving us well diversified geographies across our diversified products. So our endeavor is on diversified distribution and diversified products, and we are working in that direction. We also have a special focus on people and processes by adopting enabling technology and constantly upgrading the same tool. While the detailed numbers will be taken up by my colleague Darshana Pandya, but before that, I'm just giving you an update on our housing finance company, which also grew at a very strong CAGR of 38%, and we anticipate the same to register a growth of around 35% in foreseeable future. And this company also grows with very strong fundamentals and on all aspects. I am very thankful to all the investors who have shown tremendous faith in us by subscribing to a QIP of INR 500 crores, which was subscribed as -- many of you know, multiple times. And while the details of the numbers are already with you and will be shared there by my colleagues, let me throw some light on going forward. So going forward, we remain committed, as I said earlier, to our stated objectives to double our AUM every 3 to 4 years and being very fundamentally very strong. That is what we have demonstrated over all this journey of close to 28 years across cycle. In a lending business, how many cycles you go through, plays a very important role in judging the performance of the company. And I'm happy to share that across cycles, we have stood the litmus test of all the challenges and have produced the results, which are in front of you. So I think that this INR 11,000 crores of AUM on a consolidated basis, with a very strong fundamentals on capital adequacies as our niche expertise in serving the segment of vast market size and our aptitude and attitude to learn, relearn and unlearn will, I think, definitely help us with a very strong team of close to 4,000 to meet our stated objective of doubling our AUM every 3 to 4 years. So going forward, we see a very bright future ahead of us, a lot of opportunities. And we are sure that we'll be in a position to give our best. So with that, I will be handing over to Darshana Pandya to take over -- to give you a very brief on the numbers for the performance for the quarter, that is June '23.

Thank you, sir. Good afternoon, everyone. I'm happy to connect with all of you once again. As shared by Kamlesh sir, we have crossed 1 more milestone this quarter that is INR 11,000 crore AUM on a consolidated basis. So on consolidated basis, the exact number is INR 11,600 crore of AUM and profit after tax is INR 72.56 crores as on June '24, as compared to INR 8,867 crores AUM and INR 57.56 crores of PAT, which is 24.12% growth in AUM and 26.06% growth in PAT on a consolidated basis. . Coming to the stand-alone numbers. Our AUM grew by 23.35% from INR 8,418 crores to INR 10,383 crores. And if we look at the segment-wise growth, micro-enterprise loans grew by 12.49% from INR 4,021 crores to INR 4,523 crores. SME loans grew by 23%, that is INR 3,074 crores to INR 3,784 crores. Two-wheeler loan growth is 17.13% from INR 571 crores to INR 668 crores. Commercial vehicle loan grew by 82.28% that is from INR 448 crores to INR 817 crores and SPL loans, salaried personal loans grew by 95% from INR 302 crores to INR 590 crores. So major growth is contributed by MSME segment that is 62%. And the next is around 24% from deals portfolio and 14% from SPL loan book. Let me look at the profitability numbers, total income grew by 23.71% on a Y-on-Y basis from INR 280 crores to INR 346 crores. Profit before tax grew by 24.53% from INR 75.80 crores to INR 94.39 crores. Profit after tax grew by 23%, INR 57.25 crores to INR 70.43 crores. If you look at the quality of the portfolio, it is still very strong. Portfolio quality remained stable and strong at 2.29% gross Stage 3 asset and net Stage 3 asset is 1.52% as compared to 2.25% gross Stage 3 and 1.51% net Stage 3 as on March '24. We still carry a management overlay of INR 17.60 crores as on June '24, which is 0.22% of our on-book assets. Looking to the housing performance. Here is also a very strong growth. We registered a very strong growth. AUM grew by 38.44% from INR 450 crores to INR 623 crores. Total income, there is a growth of 37% from INR 13.61 crores to INR 18.63 crores. PBT grew by 38.46% from INR 2 crores to INR 2.80 crores, and profit after tax grew by 36.41%, from INR 1.59 crores to INR 2.17 crores. The quality of -- if you look at the quality of the portfolio, the gross Stage 3 assets is 0.90% and net Stage 3 asset is 0.65% as compared to 0.90% gross Stage 3 and 0.66% net Stage 3 as on March '24. Here also, we carry a management overlay of INR 3 crores, which is 0.63% of our on-book assets. So this was all about our performance for about the company. Now I'll request Ankit to take us through the liability management.

Thank you, ma'am. Good afternoon to all. To elaborate on the liability -- capital and liability management company through its efficient liability management was able to maintain the cash and cash equivalent of around INR 800 crores, excluding the QIP proceed for INR 500 crore and unutilized capital facility of around INR 600 crores. In addition, the company as on 30th June has sanctioned on hand to a tune of INR 200 crores in the form of term loan, direct assignment, co-lending transactions. In the last quarter, company did around INR 600 crores direct assignment and co-lending transactions. Co-lending and [indiscernible] The company further has around INR 1,500 crores sanctioned on hand, which we plan to utilize during the year. We aim to maintain around 25% of the AUM has all booked through direct assignment and co-lending. Company has available capital facility of around INR 1,700 crores, out of which other utilization was 70% to 75%, and this portion was kept as liquidity buffer. We raised around INR 490 crore term loan during the quarter, having an average maturity of 3 to 5 years. We further have around INR 725 crores term loan sanctioned on hand. In terms of capital market transaction we raised INR 150 crores during the quarter. We are strongly placed with respect to structural liquidity for the period 30th June, whereby liquidity is adequate and the cash flow in all the cumulative bucket remain positive. As you all know, during the quarter, the company raised INR 500 crores in terms of QIP. This QIP marked for security raised by the company since its IPO in 2017. The capital adequacy remains strong at 28.59% for the quarter, with Tier 1 capital of 25.39% and the debt equity of 3.08x. The cost of borrowing for the quarter was 9.80%. The cost of borrowing for June quarter last year was 9.65%. Therefore, the -- and if you compare it to March number, it has remained stable. We expect to -- the cost of borrowing to remain stable going forward too. So this is on the capital and liability management. And now we are open for Q&A round. Thank you.

[Operator Instructions] The first question is from the line of Shubhranshu Mishra from PhillipCapital.

I just have one question around the distribution channel. Let's say retail asset channel and direct retail, sir, just wanted if you can describe this, is this something different from our on lending that we do from towards the NBFC?

Yes, that is indirect retail channel. Yes.

So this is totally through our own channel -- retail asset channel is through our own employees and direct retail distribution [indiscernible]

See, direct, if I give the breakup of direct and indirect in terms of working, direct retail distribution is a distribution where our direct branches and our channels and our people are involved directly on a loan-to-loan basis, whereas in indirect retail distribution, we use NBFCs based on a loan-to-loan basis, whereby we have adequate control on all the retail assets created by our channel, as I've shared a number of times, the way we have the control, and this is a 15 years' model now. We started this vis-à-vis in 2010-'11. So close to 14 to 15 years old model, whereby the partner NBFCs are funded in order to create the assets, the same assets, which we do directly. So that is our...

Sir, I understand that. Sir, I've been tracking MAS Financial for some time. So I'm a little confused as to this retail asset channel. Does it mean NBFCs or does it mean BFCs?

NBFCs. That is NBFCs.

So 34 percentage are on lending to other NBFCs essentially?

NBFCs, yes.

And when we say that we're going to double our AUM in the next 3 to 4 years, what proportion would come from our distribution versus NBFCs, sir? So what do we see, sir, 3 to 4 years from now, what this proportion would become, sir?

See, we value both the distribution given their track record overall this year. So -- but having said that, our direct distribution will increase at a faster pace. So what looks like when we double our AUM is that it's around what looks like 65% through our direct distribution should be around 70% to 75% through our direct distribution and 25% to 30% through our indirect distribution.

Understood, sir. And this retail asset channel also includes our fintech partners for personal loans?

Yes.

[Operator Instructions] The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services.

Congratulations on the good quarter. I just wanted to understand, in terms of loan growth or AUM growth, we typically guide for 20% to 25%. But when I look at this quarter, right, I mean, in this quarter, we have grown by about 2.5% Q-o-Q in the stand-alone basis. So I mean, looking at the last few quarters, this growth looks a little muted. So if you can just explain what are those factors that led to a little bit of a muted growth in this quarter?

First of all, we don't plan our activities too much on quarter-to-quarter basis. It is on an annual basis. So we still continue to maintain our growth trajectory of 20% to 25%. Looking to this quarter, usually Q1 is weaker as compared to the other quarters in our retail finance industry. So one of the factors that contributes for the lesser growth on a quarter-to-quarter, if you measure, the normal tendency of the market to grow slow in Q1, accompanied by certain events like elections and tremendous heatwave also contributed to a certain extent. Where ideally, if you ask me would I like to grow it around quarter-to-quarter around 3.5% to 4% in first quarter instead of that we've grown at around 2.5% to 3%. But we are good with that. And we don't see too much on quarter-to-quarter basis. I am quite on trajectory to have about 20% to 25% growth on a yearly basis.

Got it, sir. Sir, the second question was around the cost of borrowings and margins. I mean, after -- I mean, especially after the credit rating upgrade, I'm guessing we've been able to negotiate better with banks in terms of the spreads that we used to charge over MCLR, which is also reflecting in our cost of borrowing remaining stable to a minor decline in the cost of borrowings. . I mean, how should we look at margins going ahead, especially during the fact that the retail direct distribution is ramping up well, which will essentially mean better yields. So how should we now look at cost of borrowings and margins going ahead?

Sir, to answer from the rating perspective, I think the rating has been updated, and it will take time for getting the rate being calibrated whenever the MCLR are reset. And secondly, given the overall scenario, we don't see that coming down very soon. So we'll be maintaining the trajectory what it is currently now. Secondly, on the spread, I think we currently maintain 7% spread -- close to 7% of NIMs. And after that, we maintain anywhere between 2.8% to 3% of ROAs. So when we increase our retail distribution, whenever in terms of our distribution, I have always -- we have always maintained that whether it is indirect retail or direct retail, the right way of looking at it at the ROAs -- what is the ROAs we are going to see at the end of the day, and it will be anywhere between 2.75% to 3.25% because if our yield increases, the expenditure will also increase in terms of operations and the current cost, which right now is upfronted with to our NBFC partners. So going forward, we see this ROAs and NIMs not to be affected much by our shift in the distribution. And we see that in the range of 2.75% to 3.25%. But we see some expansion in NIMs because of the advantage of the rating upgrade over a period of time, because of the lower cost of funds, which will be in a position to raise hopefully within the next few quarters, should expand our NIM in the range what I told you that is from 2.75% to 3.25%.

Got it. And sir just one last question that I had was, you have also given out in the press release as well as in our opening remarks that majority of our growth was contributed by the MSME segment in the last 12 months, 62% to be precise. And given the government's focus on this MSME segment in the budget as well, I mean, have you had a chance to kind of look at, I mean, how many of our customers are really MSMEs, put them certificates and who will then become eligible for a lot of these trusts, which is there on MSMEs from the government?

So practically, each and every borrower that we saw with MSMEs is Udyam registered, because whom do we serve? We serve small businesses, small enterprises into various type of businesses, we serve close to 300 different types of businesses across the geographies we operate. So when we talk about MSME, practically everybody, including our commercial vehicle business, even commercial vehicle business is considered as MSME. So they're Udyam registered and there will be eligible for the benefits, which government contemplates to give.

[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, on your DPD profile, we can see some spike both on a Y-o-Y basis. I mean, Q-o-Q is understandable. Generally, there is some heightened numbers in the June quarter. But even on a Y-o-Y basis, we see some spikes. So is it more to do with the elections or this has been seen in many other -- your peers as well. So is there a visible sort of a credit deterioration that you are seeing amongst your customers to an extent? Or is it more to do with elections and heatwaves this year compared to the previous year?

Yes. So if you see our current portfolio is somewhat around 0.6% less than what we would have anticipated. It has nothing to reflect on the deterioration on credit quality. It is just because of the -- some limitations on efforts on collections because of elections and heatwave, which would be well recouped in our or already it has already started recouping now. So we had a marginal drop in our current portfolio by 0.6%, which we would like -- we would have liked to have than what we would like to have. That was more to do on our efforts on collections rather than the deterioration on credit quality.

So now in the months of June and July, are you seeing sort of normalization on these fronts from a Y-o-Y perspective or is this still elevated?

It will take 1 or 2 quarters before it really normalizes and secondly, as we increase our retail portfolio directly, I think there will be some recalibration on the DPD -- the DPD is less than 90 DPDs. So as we increase our retail distribution directly, the borrowers won't be served. We need to bear with them below 90 DPD if you see currently, there was a lot of demand from the MSME segment, especially to requalify them the definition of NPAs from 90 to 180 as such as an industry body of NBFC, we've been advocating this since long. But having said that within that 90 DPD bucket, there can be some recalibration that is of 0.5% or 0.6% here or there. But nothing to reflect on the credit quality or any stress on that.

Understood. And if you look at your growth profile, I think a lot of this growth has been driven, of course, MSME, SME is the main state of course, growth has been there. But I think a major contribution has come from your salaried loans as well as affordable housing. . So my question is that because we also would want to cap these, especially the salaried personal loans at 10% or so. So now in future, do you see newer engines being developed by the company which can sort of take the growth path ahead of that 20%, 25% because once these are capped, let's say, they are growing very fast and they might reach a sort of a ceiling in 5 or 6 quarters. So then how do you grow at the same pace?

We have our internal plans drawn for the next around 3 years, that is almost 12 quarters as to how we should reach to the next benchmark from INR 10,000 crores to INR 20,000 crores within the next 3 to 4 years. And within that, the key contributor will be the SME, the affordable housing, the wheels and to an extent, salaried personal loan within a cap of less than 10%. So there has been internal plans drawn very meticulously to say that we registered the growth or we get a growth as targeted. So SME, affordable housing and the wheels along with our, obviously, the annual portfolio and to an extent, [indiscernible] that priority will be driving the growth forward. And we are very confident of getting that in that order.

Okay. Okay. Understood. Sir, finally, just one suggestion on the presentation. I think we see too many of second decimal everywhere. I don't think is required to have such an exact figure. I think it would be better if you can consider maybe less exact numbers, which can portray the same message, just a suggestion.

We'll work accordingly on that.

[Operator Instructions] The next question is from the line of Omkar Kamtekar from [ Askidence Academia ].

The first question, what I wanted to ask was on the overall yields. Can you -- what is the overall yield of the portfolio?

Overall?