MAS Financial Services Q2 Results Review - Strong Quarter; Growth Visibility Strong: Axis Securities

Axis Securities Report

Mas Financial Services Ltd.'s assets under management growth was robust at 27/7% YoY/QoQ (ahead of our expectation of 25/6% YoY/QoQ) with growth visible across segments. The wheels portfolio registered a robust growth of 59/16% YoY/QoQ on a lower base, while micro small and medium enterprises growth was equally strong at 20/6% YoY/QoQ.

The share of MSME loans stood at ~83% vs. 88/84% YoY/QoQ. The share of AUM sourced through the non-banking financial company partners continued to decline and stood at 36.6% versus 41/37.2% YoY/QoQ. Net interest income grew by 24/10% YoY/QoQ driven by healthy growth and margin expansion (on a calculated basis). 

Non-interest income growth of 37/12% YoY/QoQ was led by better fee and commission income. Opex growth continued to remain elevated growing at 16/13% YoY/QoQ.

Cost-income ratio inched up marginally to 31.9% versus 31.1% QoQ. Pre-provision operating profit grew by 34/10% YoY/QoQ. Credit costs inched up QoQ and stood at 108 basis points versus 91 bps QoQ. Profit after tax growth was healthy at 24/6% YoY/QoQ.

Asset quality remained stable with gross non performing asset/net non-performing assets at 2.17/1.47% versus 2.13/1.47% QoQ.

MAS Financial Services continues to carry a management overlay of Rs 19 crore (0.27% of on-book assets). The company remains well capitalised with capital to risk assets ratio/tier-I at 25.2/21.2%.

Outlook:

Backed by a balanced portfolio mix in the standalone book and strong support from the gradually scaling up housing finance portfolio, Mas Financial remains well-poised to steer superior growth over the medium-to-long term.

While margins should remain largely stable, increasing reliance on the direct channel is likely to keep opex ratios and credit costs at levels higher than the historical levels.

While we broadly maintain our NII estimates, factoring in marginally higher credit costs, we trim our earnings estimates slightly by 1-3% over FY24-25E.

Valuation and recommendation:

We reiterate our 'Buy' recommendation on the stock. The stock currently trades at 2.5 times FY25E book versus its long-term average of more than three times price to book .

We the stock at 2.9 times FY25E BV to arrive at a target price of Rs 1,075/share, implying an upside of 18% from the current market price.

Key risks to our estimates and target price.

• The key risk to our estimates remains a slowdown in overall AUM growth momentum owing to economic shocks which could potentially derail earnings momentum for the bank.

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