Equirus Capital has recently initiated coverage on MAS Financial Services, a notable Non-Banking Financial Company (NBFC), indicating a ‘long’ recommendation with a target price set at ₹401. This target price suggests an impressive upside potential of over 38% from the current market value.
Equirus expressed confidence in MAS Financial Services, highlighting key strengths such as well-established promoter pedigree, an excellent track record of asset quality, and robust capitalization. The brokerage set the coverage with a projected target price of ₹401 by September 2025, valuing the stock at 2.2 times the projected Book Value per Share (BVPS) for that fiscal year.
Company Overview
MAS Financial Services operates as a pioneering lender within the Micro, Small, and Medium Enterprises (MSME) sector, primarily catering to low-to-middle-income customers. The company has shown remarkable growth, with a compounded annual growth rate (CAGR) of 25.4% in loans and 21.4% in profits from FY21 to the first quarter of FY25. Operating through a dual distribution model—forming partnerships with other NBFCs for retail assets and direct retail channels—MASFIN aims to increase its direct retail distribution share to 75-80% in the coming years.
Market Potential and Growth Forecast
With a staggering ₹78 lakh crore financing gap in the MSME sector, MAS Financial is poised for significant growth. Projections indicate the company could achieve a 25% CAGR in assets under management (AUM) and a 24% CAGR in profit after tax (PAT) from FY24 to FY27. By FY26, the expected return on assets (RoA) stands at an impressive 3%, while return on equity (RoE) is anticipated at 14%.
Stock Performance
Despite a slight decline of over 4% in stock value over the last year, MAS Financial’s performance has shown signs of stabilization. The stock remains flat year-to-date (YTD) with modest increases of 0.7%, 0.6%, and 0.8% in the months of August, September, and October respectively. As of the latest closing price of ₹289.60, the stock remains approximately 25% away from its 52-week peak of ₹387.70, which was reached in February 2024.
Strategic Shifts and Future Plans
MAS Financial is strategically shifting its operational focus towards enhancing its direct retail channel. The reliance on partnerships with other NBFCs, which was a key component of its initial strategy in India, is expected to decrease significantly over the next few years. The company is actively planning to expand its branch network from 193 to nearly 250 by FY26, targeting major markets such as Karnataka, Tamil Nadu, Andhra Pradesh, and Delhi NCR.
Ambitious Growth Targets
With aspirations to double its AUM every two to three years throughout the next decade, MAS Financial is targeting a robust 25% CAGR. As of the first quarter of FY25, the company’s AUM was noted at ₹103.8 billion. The firm’s diversified portfolio predominantly consists of MSME lending, accounting for 80% of the total AUM, while also offering commercial vehicle loans (7.9%), two-wheeler loans (6.4%), and salaried personal loans (5.7%).
Asset Quality and Risk Management
MAs Financial Services has maintained commendable asset quality over the years, reporting an average credit cost of just 1.6% from FY20 to FY24. The company’s diligent loan underwriting process, which includes thorough physical verification and personal discussions with borrowers, has significantly contributed to this sustained asset quality. Furthermore, MASFIN’s digital integrations, which feature tech-driven loan origination and collection systems, bolster its operational efficiency.
Future Outlook and Estimates
The NBFC has delivered an average RoA of 3.1% between FY20 and FY24, with goals set to keep RoA above 2.8% and RoE above 16% moving forward. MASFIN’s management anticipates that a yield expansion of 3-4% will adequately counterbalance any operational or credit cost pressures arising from adjustments in its business model and evolving loan mix.
Potential Risks
Despite the positive outlook, Equirus points to potential risks that investors should be wary of. These include possible challenges related to asset quality in MAS Financial’s self-originated loan portfolio, alongside the risk of lower-than-expected loan growth in the coming years.
Disclaimer: The views and recommendations presented in this article are those of the analysts or brokerage firms and do not necessarily reflect the views of Mint. Investors are advised to seek guidance from certified financial experts before making any investment decisions.
