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

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of MAS Financial Services Limited, hosted by Anand Rathi Share and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kaitav Shah from Anand Rathi Equities. Thank you, and over to you, sir.

Thank you, moderator. Good afternoon, everyone. On behalf of Anand Rathi Institutional Equities, it is my pleasure to welcome you all to the Q3 earnings conference call of MAS Financial Services. It is our privilege to have hosted Mr. Kamlesh Gandhi, Chairman and Managing Director; Ms. Darshana Pandya, Director and CEO; Mr. Dhvanil Gandhi, Executive Director; Mr. Ankit Jain, CFO of MAS Financial Services, along with other top members of the senior management team. Without further ado, I now invite Mr. Kamlesh Gandhi, CMD, to share his opening remarks, post which we will open this call for Q&A. Over to you, sir.

Thank you, Kaitav, and good afternoon to all of you. I'm very happy to connect with all of you once again to review the quarter 3 performance for the financial year '24, '25. I think all of you must have gone through the results. And just to give you the overview, while my colleagues will share the numbers in detail. We know that we were going through the challenging times. And despite of that, as demonstrated over the last 25 years -- more than 25 years, next year, we'll be completing 30 years now, we have demonstrated a very robust financial performance. To start with, on the AUM on a consolidated basis, we are close to 21.17% in AUM growth, around 25% in profitability on consolidated and stand-alone basis, very importantly, while maintaining the quality of assets. We have seen some very negligible upticks, but that is quite understandable looking at the overall situation going on in the market. But happy to share with you that consistent to our belief and our endeavors of prioritizing risk management and profitability over just the numbers. And last time I shared with all of you that we might register a couple of percentage low growth, but that will be in favor of good quality and profitability and happy to share that with the endeavors of the entire team, we could achieve the strategic intent for this quarter. If I talk to you briefly, starting from assets, then taking you to liability operations and our distribution. On the asset side, we continue to focus on MSME, along with Wheels and SPL. So that gives us -- this is our endeavoring in lines of being a diversified asset company. So if you see that the contribution of Wheels and PL is gradually increasing in the overall pie, and that is in alignment with our strategic intent. But still, they continue to be majorly driven by our MSME portfolio where currently close to 80% of our portfolio contribution is from MSME with SME growing at a faster pace as compared to our MEL portfolio. And that is as per the strategic intent designed by the company and shared with all of you from time to time. On the liability side, we are well capitalized with a capital adequacy of around 25%. As all of you know that we had raised QIP in June last year, which was our preparation for our next phase of growth from INR 10,000 crores to INR 20,000 crores. We are currently at close to -- we have crossed INR 12,300 crores. And the way we are going, we see no reason that within the stipulated time period between 3 to 4 years, why we should not be at INR 20,000 crores, and we are well capitalized up till that level. We continue to attract the debt as per the requirement. The challenge, obviously, for the entire economy is the rate of interest. But anyhow, we were in a position to maintain the rates during this quarter, while the endeavor and the bucket list is that how we can see a reduction in interest rates sooner than later. On the distribution front, we continue to increase our direct distribution with around 200 branches, as I talked to you, and more than 14,000 pin codes we cater to through over 200 branches, which works within the periphery of around 40 to 60 kilometers depending upon the product, being served by strong feet on street with enabling hierarchy to help and monitor them and with enabling technology. Happy to share with you that our LOS for entire products is at place. And the [ sandbox ] for BRE is also almost over. And by March, we should be in a position to launch BRE-enabled LOS, which will further increase operational efficiencies and which will add to better risk management going forward. We continue to work with our NBFC partners that we have been -- that will be a 15 years old module now. We work across products and the advantage what we get is deeper penetration, shielding the company from unfavorable events like this which we are going through, because it is originated and guaranteed by the partners to an extent, so which shields us from the cyclical shocks that the portfolio may suffer from time to time. So that has been a very satisfying and a very rewarding product as far as we are concerned on the asset side and on the distribution. We continue to strengthen that also. On the operations, as I shared with you, technology plays a very important role. We have an in-house team which is more than 100 now, and we are expanding our team there also. The ambition is that we don't only satisfy the needs across verticals, but be ahead in giving them a few things which are very important and necessary for them for their operational efficiencies and better risk management. So that endeavor is at place, and we are very confident that, that will yield better results in the coming quarters. On the HR front, including our housing finance unit, we are a strong team of 4,000. And we have a very strong second line and the middle line, which can take the strategic intent of the company forward from time to time, as demonstrated over last more than 2.5 decades. And we have a good leadership pipeline also. While we have very minimum attrition, we have a very good leadership pipeline for anybody to take over in case of any need. And that is the result of our constant endeavor on those lines on building good leadership lines. So that was under HR front. On the ground level, let me share with you that the situation is improving, but still remains challenging. As a lender, we need to be more cautious and more circumspect. And why circumspect only during this time? Over the last 30 years, I've seen that the moment the lender is a little relaxed or is not circumspect, they have to bear the consequences. So remaining circumspect and extending credit where it is due is the way of life for any lending institute if you want to have a sustained and a consistent quality growth. We continue to believe in that. We'll continue with the same fundamentals going forward and have demonstrated and are confident that our stated objective of attaining anywhere between 20% to 25% of growth without compromising on the quality of assets and profitability across cycles will stand true and will hold its ground for the coming years. So with this confidence, I'd like to hand over this to Darshana ben, who will take you through the detailed numbers; you can be brief because the numbers are already shared, followed by Ankit on the commentary on liability management. Before I hand over, I would like to focus on 2 other things. One is our housing finance subsidiary. There, we grew at a very strong growth of 29%. We crossed the INR 700 crores mark there in our housing finance subsidiary with an asset quality of less than 1% of net Stage 3 assets well provided for, including a buffer provision also. There also, we continue to pursue the same fundamentals of managing and prioritizing risk management profitability over just growth. And we see that company also registering a strong growth anywhere between 25% to 30% going forward depending upon the situation and the opportunity we get from time to time. And within next couple of years, we see housing finance subsidiary to be a value creator for the parent too. We, in concordance to our policy of the dividend, we are declaring a dividend of 10% on the face value that amounts to INR 1 per share, given our profit -- taking into account the profitability for the 9 months. So usually, we decide an interim dividend in December once we get the direction and the sight of the year profitability for the whole year. So that will benefit the shareholders to that extent. And we have been a dividend-paying company since inception. So I'd like to hand over now to Darshana ben to take you through the basic numbers, and then to Ankit, and then we'll switch on to Q&A.

Thank you, sir. Good afternoon, everyone. If we look at the numbers on a consolidated basis, so we have crossed the INR 12,000 crore mark this quarter. So on a consolidated basis, our AUM stands at INR 12,379 crores as compared to INR 10,216 crores in the corresponding period. That is a growth of 21.17%. And if we look at the PAT on a consolidated basis, it is INR 80.40 crores as compared to INR 64.41 crores, which is around 25% growth in PAT. If we look at the stand-alone numbers, our AUM grew by 21% from INR 9,672 crores to INR 11,667 crores (sic) [ INR 11,677 crores ]. Our total income grew by 21% from INR 322 crores to INR 390 crores. Profit before tax, there is an increase of 24.36% from INR 85 crores to INR 105 crores. PAT has increased by 25% from INR 62 crores to INR 78 crores. And if we look at the 9 months number, total income has increased by 23% from INR 898 crores to INR 1,103 crores. Profit before tax grew by 25.48% from INR 240 crores to INR 301 crores and PAT has increased by 25% from INR 179 crores to INR 225 crores. If we look at the configuration of the AUM, Micro Enterprise Loan is now INR 4,704 crores from INR 4,344 crores, which is 8.28% growth in MEL loan book. SME loan book has increased by 24% from INR 3,450 crores to INR 4,273 crores. Two-wheeler, there is a growth of around 21% from INR 671 crores to INR 809 crores. Commercial vehicle growth is of 47% from INR 661 crores to INR 970 crores. Salaried personal loan, there is a growth of 69% from INR 544 crores to INR 921 crores. As Kamlesh sir shared, we have maintained the quality of the portfolio. So our gross Stage 3 asset is 2.41% as compared to 2.36% in September quarter. And net Stage 3 asset is 1.62% as compared to 1.57% in September quarter. So this 1.57% is without netting off around INR 17 crores of management overlay. Now coming to our housing performance. Here, our AUM growth is of 29% from INR 544 crores to INR 701 crores. Total income increased by 24% from INR 16 crores to INR 20 crores. Profit before tax has increased by 21% from INR 2.47 crores to INR 2.98 crores. Profit after tax has increased by 19% from INR 2 crores to INR 2.39 crores. And for 9 months, there is a growth of 31% in terms of total income from INR 45 crores to INR 59 crores. PBT has increased by around 27% from INR 7 crores to INR 8.82 crores and profit after tax has increased by 26% from INR 5.50 crores to INR 6.93 crores. Here also, we could maintain the quality of the portfolio. So gross Stage 3 asset is 0.96% as compared to 0.93% in September quarter, and net Stage 3 asset is 0.70% as compared to 0.68%. So this was about the performance for both the companies. Now I'll request Ankit to give us a brief about liability management.

Thank you, madam. Good afternoon to all. With respect to liability management, in the December quarter, we were able to maintain an average cash and cash equivalents of around INR 850 crores along with unutilized cash credit facility of around INR 300 crores. In addition, we had sanctions on hand to the tune of INR 3,000 crores in the form of term loan, direct assignment, co-lending and other instruments. In December quarter, we did around INR 625 crores direct assignment transaction and co-lending. We further have around INR 2,100 crores sanctions on hand, which will be utilized in the coming quarters. As a strategy, we aim to maintain around 20% to 25% of AUM as off-book through direct assignment and co-lending transactions. The company has available capital facility of around INR 1,500 crores, out of which generally utilization remains at 70% to 75% and rest is kept as a liquidity buffer. In the December quarter, we raised around INR 675 crores through term loan with an average maturity of 3 to 5 years. We further have sanctions on hand of INR 800 crores, which will be utilized in the coming quarters. Further, in terms of NCD, we raised around INR 375 crores during the quarter. As a strategy, we are very strongly placed in respect to structural liquidity for the period ended 31st December and where liquidity is adequate and the cash flow in all the cumulative buckets is positive. In terms of capital, we remain strong at 25.34% with Tier 1 capital of 23.13% and great room to raise Tier 2 capital as and when required. Debt-to-equity stands at 3.22x in the current quarter. The cost of borrowing for the quarter was 9.84% vis-a-vis if you compare from last year the same quarter was 9.86%. So the cost of borrowing has remained stable, and we expect it 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 Abhijit Tibrewal from Motilal Oswal.

Yes. Thank you so much, and good afternoon, everyone. Kamlesh sir, just wanted to understand, I mean, this quarter, almost every lending institution has acknowledged this tough macroeconomic environment, which you also acknowledged in your opening remarks. Just trying to understand of all these 4 to 5 key products that we are in, which are those product segments, which are those customer segments or geographies where we are seeing things to be a little tough? That is the first thing that I wanted to understand.

See, as we all know, micro enterprise loans, where the borrowers are overleveraged or are vulnerable to the slowdowns, they are the ones where we are more circumspect and we find a little more difficulty in maintaining the quality according to our standards, while overall, we have maintained it. And that's why you must have seen that, that portfolio has been grown in a very cautious manner by only 8% this year, followed by SME and two-wheeler and Wheels have not seen that pressure. And as far as our SPL portfolio is concerned, it is 100% well documented assessment, and we are very strict in our assessment in our SPL also. So if you have seen that this quarter we got a good opportunity to build that book obviously within the overall limit of not exceeding 10%. So overall, to summarize MEL, the micro enterprise loans, the small business class entrepreneurs are the ones which are facing more problems at the ground level.

Got it. Sir, I mean, is the problem, I mean, just pronounced only in the small business entrepreneur, which is our MEL portfolio? Or are we seeing that some of these problems are also spilling over to the SME portfolio, where the ticket sizes are higher, we are talking about slightly larger enterprises? And sir, a related question, I mean, again, because we are there in CVs as well, I mean, vehicle financiers who reported until now have talked about some delinquencies inching up in particularly the used CV segment, I would say. So what are we seeing in our SME and CV portfolio?

So as you know, the stress is across. When I'm talking about MEL is a relatively higher stress as compared to other products. But as far as other products are concerned, we have more room for adequate assessment. Say, for example, in SME, we have more room for adequate assessment in terms of the GST in terms of banking. But still that portfolio also is seeing some stress in some pockets as compared to what we would have anticipated. But there the silver lining, as I shared with you, is that we can have proper guardrails at place through proper assessment because we have got better documentation there. And on the asset-backed front, our commercial vehicle portfolio is still very small to experience any such or large amount of stress. But since we are rebuilding that portfolio and we want to have a good contribution from the Wheels portfolio, we are more circumspect there. But overall, the stress is across the sector, across the borrowers, but relatively, MEL has more stress.

Got it, sir. And sir, the second question that I had was on the liability side. Ankit sir said earlier that we have managed to keep our cost of borrowing stable in the quarter, and we expect the same going forward as well and stability in cost of borrowing should continue. So just trying to understand, given that, I mean, next month we will have, again, the NPC meeting, there are again expectations that there could be a rate cut. So if you could just explain how are our asset side and the liability side positioned in case there is a rate cut in the coming month?

Rate cut, there is a time lag in transmission. Because majority of our liability is MCLR backed. So we can get the advantage, or a disadvantage, whatever the case may be, on the MCLR reset. So if there is a rate cut, say, in February, followed by various dates of MCLR reset, we might get that advantage. And depending upon the market situation, the product, the competitive landscape and everything, if required, the same may be passed on to the borrowers if it really makes some difference, because the borrowers whom we serve, practically, a rate reduction of 0.25% or something like that really does not matter. And at times, we built up some cushions if we get an advantage of whenever there is some rate cut. But eventually, when there is a sustained rate cut, say, for example, from our 9.8% to it reduces to 9% over a sustained basis, that is where it starts trickling down to our borrowers also in terms of advantage. So if the rate cut is there, there will be a lagged effect, and it depends upon what amount of rate cut is done and what amount has -- and what has to be really passed on to the borrowers.

Got it. And just a follow-up on that, sir, I mean, this was the liability side that you explained. On the asset side, I mean, most of it is on fixed rate?

They are fixed rate. Our average tenure is around 36 months. So they are fixed rates.

The next question is from the line of Ankit Gupta from Bamboo Capital.

Yes. Congratulations for a very decent set of numbers in such a challenging environment. Sir, my first question was, in the past, we have seen that whenever we have come across such challenging times, we have put some brakes on our growth in terms of AUM. So given how the situation is looking like currently for FY '26, what kind of growth are we looking at them?

We continue to maintain the guidance it will grow anywhere between 20% to 25%. That is the strategic intent, but not a hard hammered rule. If the situations are favorable, it can be on the upper end of the spectrum. We can grow at even at 25% and sometimes at 26%, 27%. If the situations are not favorable and where one needs to exercise more prudence, it can be anywhere between 20%, 21% as we have demonstrated right now. But overall, in the medium term, we don't take a quarter or a year within our calculations. We take a minimum 3 to 5 years. So once again, we are confident that we were INR 10,000 crores in March '24. We should be touching INR 20,000 crores by March '28, that guidance stands.

That is always good to know. Sir, one question on the salaried personal loan. We have been reading about some stress developing on the side as well and other lenders have all been highlighting that on personal loans there has been some stress developing. And even on credit cards, we have seen the stress. But however, if you look at our growth, we almost grew at almost 69% in this quarter on a Y-o-Y basis. So can you highlight -- of course, our due diligence and credit metrics are higher compared to other lenders, but like what has been the reason for such a high growth despite challenging times across the segment as highlighted by other lenders?

See, given our distribution of 200 branches, almost 9 states, and the base as far as the PL is concerned, I think 69% can be reckoned as one mathematical number. But if you see in absolute terms, the AUM does not increase that exponentially. That is one. Number second, we don't deviate from our fundamentals of discovering growth rather than just targeting growth. If we get an opportunity within our credit screens, within our understanding, within the parameters whereby we can maintain the asset quality, we don't mind allocating more capital there and within the overall strategic intent. If you see, that we don't want to increase our salaried personal loan for coming 2 to 3 years beyond 10% of our AUM. So we will be sticking to our mandate of being below 10%. And within that trajectory, whenever we get an opportunity, maybe on a year-on-year basis or on a quarter-to-quarter basis, and if we discover good growth at the ground level on a smaller base, as the case is right now with us, that might contribute accordingly.

Sir, you did highlight about some like challenges on the MEL side. And of course, microfinance companies have been growing through a tough time over the past 3 to 4 quarters. Any views on when you think this issue is expected to be stabilized and the industry is expected to, if not return to growth point, but at least the delinquencies and all start seeing some stabilization?

I wish I know this. But just according to whatever data we have, and data is dynamic, you know. So the data what we have and the information what we have, I think we still have another quarter or 2 before the industry can work normally, because if you see, classically, MFI loans are for 18 to 24 months. And when it is loans for 18 to 24 months, we are already in the practically third quarter or you can tell it second quarter of stress. So another 1 or 2 quarters can see us -- can see the industry stabilizing, because majority of the lenders have tightened their belts on the credit screens. They have understood, maybe at a high cost, that we should extend credit where it is to due.

Sure. And my last question was on the SME side. Any segment or any particular loan size where we are seeing some stress here or the stress is across the segment?

So we do our portfolio analysis from time to time and then discover a few of the sectors which we might, for a quarter or 2, try to watch and then take further exposures. Maybe in our case, currently, we are more circumspect on textile and FMCG. Maybe that sectors will go on changing as we go forward, but that is data-driven. And currently, we see these 2 sectors being watched very closely.

Sure. And so these are just the sectors. It is not across the SME sector that you are seeing challenges?

No. As per our data analysis, these are the 2 areas which are showing some abnormal pressures.

The next question is from the line of Aditya from Securities Investment Management.

So you mentioned that the environment is still challenging. So as an organization, what are we doing to navigate through this environment? So have we tightened our FOIR ratios or any other risk parameters, which would help us deliver better asset quality going forward?

See, as I told in my opening remarks that as lender, we have to be always cautious. And at MAS, we believe, with the risk of sounding contrary and not just managing the risk, but to crush the risk as much as possible. That has been our policy. So for us, we don't have to do anything much extraordinary because right from the inception, we believe in working in a way whereby we can minimize the risk. But having said that, when the environment is so vitiated, despite of all your efforts, you might see all your policies not working according to your plans. So we do the data analysis, we take the ground level information, and from time to time still tighten our credit screen, tighten our origination, put brakes on the businesses, which we think we should not do for certain quarters. As I shared earlier that in SME, we might be more circumspect on certain sectors like textiles and FMCG, maybe in our two-wheeler or commercial vehicle business. We might be circumspect on certain branches and certain areas where we see early delinquencies. So that is a continuous process. But we have been doing this all times. Maybe the situation is benign. We don't relax and extend credit very aggressively as demonstrated over all these years.

Understood. So sir, would it be fair to say our rejection rates would have seen an increase from the normal past history?

Yes, yes, it has increased substantially.

Understood. Understood, sir. And sir, if I look at your capital adequacy, so in June quarter, it was around 28%, which has come down to 25% in the December quarter. So this seems to us a sharp decrease in 2 quarters. So while our loan growth has been good, but the capital consumption seems to be on a higher side. So if you can explain what has led to this? Is it majorly because of a higher growth in personal loans?

Not really, because if you see higher growth in personal -- personal loan is hardly 8% of our total AUM. I think we can share those granulated data offline. But if you see, our capital adequacy is much more than what is required. And we have increased the AUM from time to time, and there are internal accruals also. If you'd like to add on, Ankit, something to this?

So what we have done is, because of excess liquidity, because of the capital raise, what we have done is we also -- if you see, our off-book was 22%, which is now 20%, which we can always increase as per our -- because we have a sanction on hand. So strategically, what we have done, because of liquidity on hand, we have done off-book lesser. And because of on-book portfolio growth, it has resulted into a higher CAR -- lower CAR. But that will be managed going forward.

Sure. Okay. And now, sir, as we increase our direct distribution, so how should we look at PCR, because it is currently around 33%. So should this number increase going forward?

Yes, because if the share of direct distribution is increasing and PCR, as you know, that with the advent of ECL is 100% data-driven based on the last 5 years performance of the portfolio. And we would see the PCR behaving according to the quality of the assets. And secondly, PCR is also the function, in our case, of the guarantees that we get in terms of CGTMSE and CGFMU from time to time. So that is also factored in while calculating PCR.

The next question is from the line of Sanket Chheda from DAM Capital.

My question was again on the personal loans. So it is about 8% of the AUM. But if we just see the AUM accretion to this quarter, which is about INR 7,000 crores, of that INR 2,400 crores is personal loans, which is around 30%, 35% of AUM accretion has come from personal loans. So just wanted to understand how much of it is direct and how much it is through the channel partners? And while the micro enterprise is muted for us since last 1 year, is it that we are stretched on the growth and hence maybe we are stretching on the personal loans as well to our threshold, which is now at least closer to 10%. So just wanted to understand how much of it is direct and through channel partners? And how are we getting that comfort? We mentioned that it stays in your guardrail and then only you grow that. But just a little bit more granularity on that would be helpful.

So as you know that we work with few of the select fintech partners of the country on the terms and conditions and on the credit screens which we have mandated to them. We have been working with them since a few quarters. And now the systems and operations with them have stabilized. We don't give short-term personal loans [Technical Difficulty].