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

Ladies and gentlemen, good day, and welcome to MAS Financial Services Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors. Thank you, and over to you, sir.

Very good afternoon to all of you. We have with us the entire management team of MAS Financial to discuss the Q1 results. From the management side, we have Mr. Kamlesh Gandhi, who is the Chairman and Managing Director; Mrs. Darshana Pandya, who is Executive Director and the CEO; Mr. Dhvanil Gandhi, who is the Executive Director; Mr. Ankit Jain, who is the CFO and Head of Investor Relations. So without further ado, I will hand the call over to Kamlesh Gandhi, sir, for his opening remarks. We will follow that up with question and answers. Over to you, sir.

Thank you, Sanket, and good afternoon to all of you. I'm very happy to be connected to all of you again in order to take you through the Q1 results. And so while everyone of you must have gone through the results and the presentation, but I'm very happy to share with you that we could demonstrate a high-quality growth this quarter, consistent to what we have been doing over this year. This was 125th quarter of performance. So this is a very long time and a consistent performance in line of what we think. That is what I shared in the press note also that this is consistent to our belief that steadily and consistently is the fastest way to reach your destination. So we have walked that talk, and we very well intend to do it in future also. On the performance side, what makes me start with a remark of a high-quality growth is the profitability that we could register along with a very strong asset quality also at a 27% on a consolidated basis and 25% on the stand-alone basis. With a very strong AUM growth of 21%, consistent to our guidance of 20% to 25%. So this quarter, we have started moving towards that 20-plus mark, and we see this improving quarter-on-quarter depending the way we have been in a position to spread our distribution and depending upon the macro situations from time to time. So all in all, it was a nice quarter. We crossed a very landmark, once again a landmark of INR 16,000 crores in AUM. And as in consistent to our way of working that we double our AUM every 3, 3.5 years, we are well on track doing the same if you consider INR 10,000 crores in say '24 December. So that is on the headline numbers. If I talk about 3 very important things that is asset liability operations, let me take you through all these 3 important constituents of this business. On the asset, we continue to predominantly focus on our prime segment, that is MSME segment that we have been doing since long. And we are in a position to demonstrate a good growth in both our segments that we bifurcate MEL and SME with a very stable and a good asset quality. And along with contribution from 2-wheelers and commercial vehicle and salaried personal loan that gives us a flair of diversification to the asset that we create. This assets are created through a very strong distribution of 16,500 centers through over 209 branches and also through our partnership with more than 200 NBFCs, which is now more than a 15 years old model. So around 33% being contributed by that model and 67% coming through our direct distribution, which we see gradually increasing in favor of direct distribution to 70% plus within next 8 to 12 quarters. So on the asset side, we were -- we continue to follow the same strategy that we have been following so far while extending credit it to due and maintaining the very robust quality of assets. Asset creation was also added by our integration with various tech platforms and our tie up with few of the fintechs that helped us to create the assets what we intended to and also give us an understanding -- more understanding of the play of technology in asset creation, which I think all of us will have to learn going forward. On the quality of the assets, we remain very strong at GNPA of close to 2.58% and NNPA of 1.70%. Despite probable headwinds of the conflict, which we were expecting in the beginning, but fortunately did not play out because of 3 reasons. The first I have to attribute to the resilience of the sector we are working with the MSME borrowers. And second, our prudent approach to asset creation and extending credit where it is due. Coming on a very important part that is liabilities. Starting from the base of the liabilities that is the capital. Capital adequacy ratio stood at a very strong 23% plus this quarter also that forms a very strong base for us to raise the liability and generate the required liquidity at the optimum rate. I was talking to somebody in the morning on the reduction in rates. So, well, we could achieve a reduction of rate this quarter, but we were -- say in '23 or before the COVID set in and then there were a lot of changes. We used to borrow less than 9% too. So if you ask me personally, I aspire that going forward, given the positive macro environment and the liquidity available, we should move back towards those rates. While this year, we did good in reducing our borrowing cost by almost 55 basis points to 9.25% from the FY borrowing cost. We remain very strongly in terms of ALM management and the liquidity management and I would like to thank the lenders very heartly for putting the trust in us and we always have more liquidity than what we require. Quickly on the operation side. And when we talk about operations, we have to talk tech in the same vein. We are very aware and conscious of the fact that tech and building up of tech, integration of tech in the right earnest should help us and should be the way forward. As I shared earlier that we operate on a build and operate model. We have an in-house team of close to 100 people consisting of business analysts and software engineers. And with the recent help of AI and all, we see a lot of changes, and a lot efficiency creeping in as far as our tech department is also concerned. We have a complete LOS for all the product. LMS has been there since long. LOS is being now added with BRE and to the substantial straight-through processes, albeit with a human intervention because the borrowers who we sell also requires a fair amount of human intervention, but that is creating a lot of efficiencies at the credit delivery level. So when we talk about ops, we are talking about much of tech and adoption of tech and aspiration for the tech plays a very important role. And we at the top level of the organization percolating down to the bottom are well aware of the fact and are executing -- are trying to execute as efficiently and as swiftly as possible. In terms of HR, let me start human resource with the 2 developments what we have affected this quarter. One is our CRO, Nishant Jain, who is with the company since last almost 7, 8 years and given his performance and given his contribution on the risk management has been entrusted to more responsibility as Director Operations, which will cover credit risk and operations, everything. And he'll be reporting to the Executive Director and CEO and he will be looking after operations effective 1st September. And in his place, Darshil Thakkar, who is -- Nishant is a qualified chartered accountant. Darshil Thakkar is a qualified chartered accountant, cost accountant and the company secretary and a rank holder and with the company since more than 10 years was holding a very key position on credit delivery in the SME and RSE space has been elevated to the role of CRO. So with these changes, I think we are strengthening our middle line of management and creating a very strong succession path within the organization. And going forward, we see such changes happening more frequently. In terms of the team size, like for all the organizations and especially the financial services who with the help of technology could bring down on the number of people they employ. We could also reduce the employee count by 380 this quarter, which you will see is reflected in the employee cost also and that is because of the adoption of technology. While we adopt technology, we consider human resource still as one of the most important pillars for success. But the only change what I see now is that it will be the survival of the fittest. And it was first in terms of -- for financial services industry where there was a mad rush to appoint people and people were scared, it was like a fastest finger first moving to survival of the fittest, and that's a development in the right direction. So we continue to pursue HR as one of the important tools to achieve our goal, and we are through our competent HR team, we are doing our best to get the best efficiencies from the team. Quickly on the housing finance side, I'm very happy to share the operational numbers in terms of profitability, a strong growth of profitability of 56% because of the lower operational cost as we are growing our AUM. We are striking distance away from INR 1,000 crores and candidly where the growth in the housing finance company has to reach its potential of around 35%, which we internally aspire. But having said that, we have always adopted the team of prioritizing risk and profitability over just the AUM growth. But that does not mean that we have the license to grow only at 22%, 23%. So we are working very actively to strengthen our distribution system. While in his remark, Dhvanil at the appropriate time will share his plans for expanding our operations in South also as far as housing finance is concerned. So we are very hopeful that within next few quarters, we should see this company inching up on AUM also while maintaining a very strong profitability on the back of operational efficiencies and also the control on the credit cost. Here also, friends, the net NPA is 0.68% and with a sufficient buffer despite of this being 100% secured. So it is -- and with a 35% capital adequacy and with capital available at need, this company is on a very strong footing. Maybe we have taken a few -- some more time in growing the book, but we are in the right direction, and it will soon be a value accretive for the parent, which we are confident of. So rather taking much of your time with this, I will hand over to Darshana Bhen to take you through the detailed numbers while you already have it. But once again for the benefit of everyone, she will take you quickly through the numbers followed by Ankit and then followed by Q&A. Over to you, Darshana Bhen.

Thank you, sir. Good afternoon, everyone. So I will quickly take you through the key numbers. Coming to the consolidated numbers, as sir shared, we have crossed a margin INR 16,000 crores on consolidated business as far as the AUM is concerned. So it take a growth of around 21% from INR 13,300 crores to INR 16,100 crores, and there is a PAT growth is of 27% from INR 86 crores to INR 110 crores. Now coming to the standalone numbers. What we achieved in the last quarter on consolidated basis we have achieved on standalone basis. So AUM stands at INR 15,146 crores that is 21% growth in AUM from INR 12,500 crores to INR 15,146 crores. Total income there is a growth of around 20% from INR 442 crores to INR 530 crores. Profit before tax there is a growth of 25% from INR 112 crores to INR 140 crores and the profit after tax due by 25% from INR 84 crores to INR 104 crores. If we look at the configuration of the loan book micro enterprise MSME loan contributes around 77%, wheels is 14% and salaried personal loan is 9%. There is a growth of around 23% in MEL book that is from INR 5,008 crores to INR 6,152 crores. SME loan there is a growth of 21% from INR 4,525 crores to INR 5,485 crores. Two wheeler loan there is a growth of 19% from INR 871 crores to INR 1,039 crores. CV loan book grew by 13% from INR 967 crores to INR 1,095 crores and salaried personal loans there is a growth of 21% from INR 1,131 crores to INR 1,374 crores. Coming to the quality of the portfolio it remains stable and strong as compared to March '26. As on June the gross stage 3 asset is 2.58% and net stage 3 asset is 1.7% which was 2.57% and 1.7% in March '26. And this is without considering the management overlay of INR 17.63 crores as on June. Regarding our housing finance company there is a growth in AUM by 23%. So from INR 794 crores to INR 976 crores. Total income grew by 30% from INR 23 crores to INR 30 crores. Profit before tax grew by 61% from INR 3.53 crores to INR 5.70 crores and profit after tax there is a growth of 55% from INR 2.76 crores to INR 4.27 crores. Here also the portfolio quality remains stable and strong. It is 0.98% gross stage 3 asset and 0.68% net stage 3 asset which was same in the quarter March '26. So this was about the performance in Q1 for both the companies. Now I will request Ankit to give us the update on finance and resource management.

Thank you, ma'am. Good afternoon to all. To elaborate on capital and liability management. First to on liquidity management. The company continues to maintain a strong liquidity profile through effective liquidity management. During the quarter, we maintained an average liquidity balance of around INR 1,000 crores. As on June 30, '26, we have sanctioned borrowing line of more than INR 1,900 crores across term loans, noncommodity ventures and direct assignment. With respect to fund raise during the quarter, we executed direct assignment transaction aggregating to INR 700 crores. In addition, we currently have sanctioned direct assignment lines of more than INR 700 crores which we expect to utilize during the quarter. Our objective remains to maintain 20% to 25% of AUM off book through direct assignment and other off-book transactions. We have a cash flow facility of approximately INR 1,400 crores and spread across 12 banks. We maintain average utilization level of 70% to 75% during the quarter while keeping the uncollected portion available as a liquidity buffer. On the long-term borrowing front, we raised INR 400 crores through term loans during the quarter with an average maturity profile of 3 to 5 years. We also raised INR 650 crores through noncommodity venture of which INR 360 crores was subscribed by FMO, the Dutch Development Bank and rest was through retail and other one was through our bank. Additionally, we have sanctioned borrowing lines of more than INR 250 crores available for future drawdown. With respect to asset liability maturity pattern we are well placed whereby we have positive cumulative cash flows across all maturity buckets. With respect to capital adequacy, we remain strong at 23.25% with Tier 1 capital at 21.94% and debt equity ratio at 3.35x. Our capital adequacy provides adequate headroom to support our medium-term growth strategy. The average cost of borrowing during the quarter stood at 9.25%, reflecting a reduction of 55 basis points compared to corresponding period last year and around 15 basis points compared to March quarter. Our incremental borrowing cost remains around 9.2% to 9.25%. We expect our cost of borrowing to remain stable. Our borrowing profile continues to remain well diversified across banks, NCD investors, mutual funds, DFIs and direct assignment and other capital market instruments. Overall, we remain adequately capitalized, well funded and comfortably positioned to support our business growth by maintaining prudent liquidity, comfortable leverage and diversified liquid liability profile. Thank you. Now we are open for Q&A.

[Operator Instructions] The first question is from the line of Ishank Gupta from Choice Institutional Equity.

Yes. Congratulations for a good set of numbers.

Ishank, can you please speak a little loudly?

Yes. Am I audible? Is it better?

Yes.

Yes. So my first question is, can you kindly share the demand that you are observing in the used CV business? Moreover, how has been the collection efficiency as we have witnessed a sharper uptick in the gross NPA vis-a-vis other segments?

If we talk about the demand, the demand has been quite robust. But when we talk about eligible demand and on tightening the credit screen given the current crisis and especially on the energy side of it, that is the fuel in used commercial vehicle, the eligible demand was slightly less. And as I shared earlier that we are in the process of calibrating our distribution and product processes as far as commercial vehicle is concerned. And we see to that within next 1 or 2 quarters, we'll be in a position to do the volumes along with the desired quality. And in terms of the collection efficiencies, this fluctuation is normal as far as commercial vehicle is concerned, and we see no undue risk on the quality of the portfolio and the losses that can happen because of this fluctuation.

So by then we can see some stronger growth in the used CV business for the year?

At least, I will say 2 quarters away because customary to our style, we would not like to jump on any products in a very aggressive manner and especially given the current situation, which is so fluid. So we would like to wait and watch for 1 or 2 quarters before we really see that growing faster.

Sir, my second question would be, given the monsoon has been weaker this year, do we foresee any weakness in credit discussions for the 2-wheeler segment as we witnessed a degrowth on quarter-on-quarter basis?

Not really because degrowth on quarter-to-quarter basis is that usually Q3 and Q4 are strong quarters for two-wheeler given the seasonality and the festivals being there in Q3 and Q4 in different parts of the country. So Q1 is usually muted. So this is in lines of the normal muted Q1 that we have been seeing mostly over the years. And as far as the rains are concerned, many part has recouped in terms of the deficiencies in the rain. Now at many places, we are facing another problem that they were overflooded. And so now we need to see that how it really spans out. So depending upon the geographies we operate and depending upon the centers we operate, depending on the ground level information that we gather from our sales collection and the credit team, we design our credit screen and tighten our credit screens accordingly. So let us see how that really spans out. It will take some time before we can really comment on that.

Understood. Also, we have witnessed a back-to-back increase in yields and advances for the second quarter. So how sustainable are these yields? And what was the primary driver for this increase?

As far as our NIMs are concerned, as I always maintain that we would like to work on a spreads of anywhere between 7% to 7.5% and then translating into NIMs of anywhere between 8% to 8.5%. We see that we structure our asset creation in such a manner that the spreads of around 7% to 7.5% are maintained more or less and that should sustain the yield anywhere between 8% to 8.5%.

Got it. My last question would be are we going to witness any further reduction in our cost of funding given we have already reached our target of 9.2%, more or less around target of 9.2%?

Difficult to comment right now because the cost of borrowing is dependent on the macro situation. So depending upon the RBI policies from time to time and the liquidity available in the market from time to time. But it will be our efforts to see to that we stabilize or reduce. But as Ankit shared with you that according to Ankit, our CFO, this should remain in this horizon of between 9.2% to 9.3%.

The next question is from the line of Devam Modi from ARDEKO Asset.

Congrats on a good set of numbers, sir. So firstly just wanted to understand that we understand that your on-book AUM as a percentage of total AUM has risen this quarter. Now what implications would that have for provisions? And would that mean that, let's say, you would need a more higher level of standard asset provisioning or something like that because your on-book AUM has gone up? And what will be the impact of the same in numbers?

So whenever the on-book asset increases, obviously, the corresponding provisions also increases. If you see that against our 5% Q-on-Q growth on book has increased by 8.25%. So that has caused an increase in provision also. If you see our provisioning in Stage 1 and Stage 2 has increased from 0.6% to 0.7%. So that is the impact which translates to roughly around between INR 5 crores to INR 7 crores in provisioning. But the fluctuation on book off book is constant because it depends upon the opportunity and the rates at what we can assign our portfolio from time to time. So given our capabilities to have a lot of alternate means of funding, we don't compromise on rate of interest and other terms just to keep the portfolio book and even our capital -- very strong capital adequacy. So off book is desirable, but not a compulsion on us.

Okay, sir. And sir, we do note that you have been a little cautious on the environment. However, as you mentioned that there is a sheer resilience of the model and probably the overall borrowers profile and all those things. You have managed to overshoot the ROA towards like, let's say, greater than 3% for the last 2 quarters. Given that the environment going ahead, you are probably stepping into a relatively more benign environment than the last 6 to 8 quarters, which had other headwinds. Would you -- what is the kind of ROA range that we should comfortably consider first part? And the second thing that how should we see the new branches that we have opened post March '24? How should we see that sweating play out in '27 and '28?

So starting with the second question, the branches by '27, '28 will definitely sweat or even earlier than that. And on question of ROA, I think we always maintain the 2.75% to 3.25% as a range between which we will maintain our ROAs. And depending on the environment improvement or deterioration, that is where we, our credit screen works as a cushion. The only difference is that we have to -- we get more opportunities to do the business if the environment is good because we can take a calculated risk as far as our credit screens are concerned which are tightened in a challenging environment. But at the end of the day the dictum of extending credit due is maintained. We are not allowing that to hamper our profitability. So in the same way, it cannot increase our profitability substantially because that is already been factored in. The difference will be how the ease of doing the business at the ground level in terms of logins to disbursement and in terms of the ticket sizes that we can extend that might potentially translate into better efficiencies.

Okay. Sure. Sir, just if you can clarify when you say trans sweating should happen before '27 and '28, what are the key numbers to watch out for? And what would it mean in terms of -- one is you mentioned efficiency as a thing, what would be the metric to track there? And what would it mean in terms of cost to income?

So obviously, the cost to income should stabilize or reduce marginally over a period of time. And as I told you, being a diversified product company, taking only cost to income or yield in isolation will not give us the right picture. But taking the complete yield metrics in terms of what are the ROAs that we generate because if I have a product which is high yielding but high operating cost, but at the end of the day, the ROA is maintain. So once again, the focus will be to maintain ROAs between 2.75% to 3.25%. The sweating of branches will signify that we are at the higher end of the spectrum.

[Operator Instructions] The next question is from the line of Aditya from Securities Investment Management.

Sir, first question was on credit cost. So now credit costs are around 1.6% of our AUM. And if I look back 1 year before, they were around 1.2%, 1.3% of AUM. And sir, if I look at your share of direct distribution that broadly remained in the range of 66%, 67% for the last 2 years. So what explains this higher credit cost?

See, the borrowers worked with credit cost will always be range bound, so it will be difficult to maintain a particular number. So we have always maintained that we'll be anywhere between 1.25% to 1.75% on credit cost. And once again, credit cost has to be looked in a perspective of what are the net ROAs we generate. So for example, 2 quarters down the line, we grow more on commercial vehicle. The very nature of commercial vehicle business is high yield, high losses. So at the end of the day, it all depends upon what is the asset configuration. But here, increase from 1.2% to -- last time, it was around 1.5% and from 1.5% to 1.6% does not reflect on the quality of the assets we generate. And that is well within our tolerance of what yields we generate from those assets. So at the end of the day, these credit costs are well within our tolerance limit and it will be range bound between 1.5% to -- 1.25% to 1.75%.

Understood. But sir, just a follow-up here. I understand there is a mix change. But last year, there was an impact of microfinance because of which our credit cost increased last year. In Q4 also, we had taken aggressive write-offs because we were expecting good profit growth. So ideally, the credit cost as a percentage of AUM should have come down --- be coming down this year, but that doesn't seem to be playing out. So some understanding if you could give us.

If I requote the number, there are two which I shared earlier that our standard asset provisioning because of our on-book assets being increased higher than what it was last time before that had entailed an extra provisioning of anywhere between INR 6 crores to INR 7 crores. So if you take out that INR 6 crores to INR 7 crores of extra provisioning, which that will normalize our credit cost to a far extent. So that was one of the reasons. Plus we also had a prudent write-off this year. So a combination of everything that higher on-book portfolio a marginally higher provisioning in our Stage 1 and Stage 2 portfolio, which is a sort of a sense of buffer. So combination of everything has resulted to whatever numbers we have reached here. But those numbers have not affected our ROAs or profitability.

Understood, sir. And any extra write-offs which you'll taken this quarter as well?

So that's a regular feature. So anything for any of the assets where we are not very sure of the recovery, that happens. So that write-offs will be there.

Understood. Okay. And sir, any impact of recent floods which we have witness in Gujarat either on asset quality or disbursement going forward?

So many part of Gujarat are still in floods. So it will be difficult for me to assess it right now. But those are all temporary measure things which over the years we have seen. This is not the first time we are seeing our territories under flood. It has happened very regularly in the past also. So temporarily the operations might be affected maybe for a day or 2. Once again, they are back to normal. So I don't foresee much of the stress on the quality of the assets, but let us see how it evolves.

Understood. And now sir, in the opening remarks, you mentioned that we have been able to bring down the number of employees. So if you could just help us understand in what areas has tech helped us and going forward as well, do you see this a recurring future?

So yes, I think this is a culmination of last, I think, a year or 1.5 years hard work in terms of various tech initiatives that we took across the board. So what you see in terms of reduction is 2 ways. One is tech automizing a few things and that leading to requirement of lower manpower. So we are hopeful that further improvements, further enhancements will help. Difficult to put a number to it right now because there will also be some periods where we will keep the staff strength but also test the tech and then implement it once we are very sure about it. So we see this improvement coming in during the year. So difficult to put a number. But yes, I think tech leading to better efficiency, lesser requirement of incremental manpower as the business increases are 2 areas that we are looking at actively.

Is it more helping us in collections or underwriting or...

So operations and underwriting majorly and soft bucket collections, yes. So introduction of bots, introduction of auto-allocation, various other things. So even origination wherein some of our partnerships are helping us out there. So I would say it is getting contribution from everywhere, origination, underwriting and operations and collection, all 3 of them.

Got it. Understood. And sir, in the opening remarks, you mentioned that we'd like to take our borrowing cost to 9%, which was pre-COVID levels. So just wanted to understand what will help us drive that. So is it a credit rating upgrade which we are looking at or anything else?

So that was more from the sense that we have borrowed at sub-9, and that's the wish ideally, but we also have to look at the market conditions and what is going on in the market. So currently, sub-9 immediately within next 1 or 2 quarters looks like a far-fetch assumption. On the contrary, even if we are able to maintain this at the current level, considering the overall macro situation where inflation numbers are on the fence, RBI is also on the fence in terms of rate hike and all. So I think the first target for us is to maintain this at 9.25% to 9.3%. Then we can -- maybe 1 or 2 quarters down the line once overall macro stabilizes, we can again go back to the drawing board and see what avenues we have for reduction in rate. But credit rating upgrade, yes, is something that we are pursuing actively. We can't say when, but that's one thing that can have an impact on the borrowing cost.

Got it. And just lastly on the housing finance...

Sorry to interrupt you, Mr. Aditya, but can you please rejoin the queue.