IPO Note | Financials

Oct 05, 2017

MAS Financials Services Ltd

sue Open: Oct 06, 2017

On the track to excel

Issue Close: Oct 10, 2017

MAS Financial Services (MAS) is a Gujarat based NBFC, which is two decades

old. It primarily lends to Micro Enterprises (ME) and SME, which contribute 60%

and 23% of its AUM respectively. Company’s business and financing is in five

Issue Details

categories i.e. micro-enterprise loan, SME loans, two wheeler loans, commercial

Face Value: `10

vehicle loans and housing loans. Company’s AUM has grown at healthy 33.4%

Present Eq. Paid up Capital: `91.5cr

CAGR over FY2013-17 with strong asset quality (GNPA -1.1%, NNPA -0.9%).

Expanding offerings to support AUM growth: MAS had begun its journey with a

Offer for Sale: **0.49cr Shares

clear focus to ME and gradually expanded its offerings to two wheeler & CV

segments for its existing client. FY2012 onwards, MAS commenced lending to

Fresh issue: `233cr

SME and Housing loan, which is growing at a very healthy rate. To leverage

Post Eq. Paid up Capital: `96.5cr

existing client base and network further it has extended loans to the agricultural

input and equipment segment.

Issue size (amount): *`457cr -**460 cr

Fairly strong AUM growth at 33.4% CAGR over FY2013-17: Focused approach

towards asset financing, ability to find out gaps and the underserved sections of

Price Band: `456-459

the micro enterprise SME, Vehicle Finance, segments has helped the company to

Lot Size: 32 shares and in multiple

achieve a strong 33.4% CAGR in AUM over FY2013-17.

thereafter

Healthy return ratios: MAS has reported average ROE/ROA of 27.9%/3.2% over

Post-issue implied mkt. cap: *`2,492cr

last 5 years. Higher return ratios are largely driven by lower Cost to Income(C/I)

- **`2,508cr

(33.5%) and lower provisioning expenses. C/I has declined from 43.7% in

Promoters holding Pre-Issue: 80.7%

FY2013 to 33.5% in FY2017, and we believe C/I would continue to decline

Promoters holding Post-Issue: 73.2%

further.

Strong asset quality; sufficient CAR to support growth: Robust credit assessment

*Calculated on lower price band

process and clever understanding of targeted market has helped to keep GNPA at

** Calculated on upper price band

1% over last 5 years. As on 1QFY2018, CAR stood at 23.8% and post IPO CAR

Book Building

would further increase. With strong internal capital generation ability, present

high CAR and IPO proceeds would not require MAS to dilute equity for high

QIBs

50% of issue

growth in near future.

Non-Institutional

15% of issue

High valuations underpinned by high growth potential and profitability: Close

Retail

35% of issue

peers, Capital First and Shriram City Union Finance are trading at ~3x FY2017

book, however both the companies report moderate ROE of 11%. At the upper

end of the price band, MAS is valued at 6.85x of FY2017 book value (Pre-IPO)

Post Issue Shareholding Patter

and on post dilution basis at 4.1x of Book value. Although valuations are on the

Promoters

73%

higher side, looking at the strong and sustainable growth and ROE prospects of

the company, we recommend a Subscribe to the issue.

Others

27%

Key Financials

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17

NII

105

136

172

YoY Growth (%)

PAT

YoY Growth (%)

EPS

Book Value

P/E

P/BV

Jaikishan J Parmar

ROE (%)

+022 39357600, Extn: 6810

ROA (%)

[email protected]

Source: RHP, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band d

Please refer to important disclosures at the end of this report

MAS Financials Services Ltd | IPO Note

Company Background

MAS Fin Ser is a Gujarat-headquartered NBFC with more than two decades of

business operations and as of June 30, 2017, it operated across six States and the

NCT of Delhi. The financing activity are primarily focused on middle and low

income customer segments, and include five principal categories: (i) micro-

enterprise loans; (ii) SME loans; (iii) two-wheeler loans; (iv) Commercial Vehicle

loans (which include new and used commercial vehicle loans, used car loans and

tractor loans); and (v) housing loans.

As of Q4FY17 and Q1FY18, the company’s AUM was `3,332.6cr and `3,451.7

cr, respectively. AUM increased at a CAGR of 33.4% from `1,053.2cr as of FY13

to `3,332.6cr as of FY17. As of June 30, 2017 MAS had more than 500,000

active loan accounts, across more than 3,165 Customer Locations in six States and

the NCT of Delhi, served through our 121 branches.

Exhibit 1: Business Segments

SME Two Wheeler

CV Housing

AUM (` Cr )

1,984.86

763.84

285.39

122.06

3,332.57

% of AUM

Average Ticket Size

`36,000

`55lacs

`43,000

`1.5lacs

`14lacs

4 Yr CAGR

138

Loan Tenure

36 Months

60 Months 240 Months

Source: RHP, Angel Research

Key Management Personnel

Mr. Kamlesh Chimanlal Gandhi is Chairman & Managing Director (Founder of

MAS). He received the higher secondary school examination certificate from the

Gujarat Secondary Education Board, Gandhinagar in 1983. He has over 21 years

of experience in the financial services sector.

Mr. Mukesh Chimanlal Gandhi is a whole-time Director and Chief Financial

Officer of the Company. He has been associated with the Company since May 25,

1995. He holds bachelor’s and master’s degrees in commerce from Gujarat

University. He is also the chairman of the Gujarat Finance Company Association

and a director of the Finance Industry Development Council.

Darshana Saumil Pandya is an executive Director of the Company. She has been

associated with the Company since June 1, 1996. She holds a bachelor’s degree

in commerce from Gujarat University. Presently, she also holds the position of the

Chief Operating Officer of the Company.

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Issue details

This IPO is a mix of OFS and issue of fresh shares. The issue would constitute fresh

issue worth of `233cr and OFS worth of `227cr. OFS largely would offer exit to

early investors namely FMO, DEG & Sarva Capital.

Exhibit 2: Pre and Post-IPO shareholding pattern

No of shares

(Pre-issue)

(Post-issue)

Promoter

3,99,96,975

80.7

3,99,96,975

73.2

Investor/Public

95,72,239

19.3

1,46,48,491

26.8

4,95,69,214

100.0

5,46,45,466

100.0

Source: RHP Note: Calculated on upper price band

Objects of the offer

 To achieve benefits of listing equity shares on stock exchanges and to carry out

the offer for sale. Listing of equity shares will enhance MAS’ brand name and

provide liquidity to existing shareholders.

 The Company would utilise the proceeds from the Fresh Issue towards

augmenting its capital base to meet future capital requirements.

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Expanding offerings to support AUM growth: MAS has begun its journey with a

clear focus to ME and gradually expanded its offering in two wheeler & CV to

existing client. FY12 onwards MAS has commence lending to SME and Housing

loan, which is growing at a very healthy rate. To Leverage existing client base and

network further it has extended loans to the agricultural input and equipment

segment.

Exhibit 3: Segmental Gross AUM (` Cr )

FY13

FY14

FY15

FY16

FY17

CAGR FY13-17

651

948

1,386

1,735

1,985

32%

YoY Growth %

SME

215

429

764

138%

YoY Growth %

214

185

100

Two Wheeler

227

229

240

258

285

YoY Growth %

110

139

164

144

122

YoY Growth %

-12

-15

Housing Loan

135

176

44%

YoY Growth %

Total AUM

1,053

1,743

2,354

2,820

3,421

33%

YoY Growth %

Source: RHP

We believe ME & SME would continue to support advance growth going forward.

However, housing finance and newly ventured segment i.e. farm loan would

propel loan growth going forward. It intends to offer loans to farmers to acquire

accessories, implements and tractors in collaboration with dealers, manufacturers

and distributors as sourcing intermediaries. The proximity of these sourcing

intermediaries with farmers enables them to generate quality leads for MAS.

Power equipment, hybrid seeds penetration, and higher usage of bio-pesticides

and bio-fertilisers will drive growth close to 15% in FY2017 and over 10%

thereafter, compared to a single digit growth for most large sub segments in Fiscal

2016. (Source: CRISIL Agri Report, 2016)

Agricultural finance segment had a market size of `8.8 trillion in FY2016. The

expectation of good monsoons is expected to increase demand for agriculture

credit. A growth of 13-15% is expected going ahead in agricultural financing in

India.

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Fairly strong AUM growth at 33.4% CAGR over FY2013-17: Focused approach

towards asset financing, the ability to find out gaps and the underserved sections

of the micro enterprise SME, Vehicle Finance segments has helped the company to

achieve a strong 33.4% CAGR in AUM over FY2013-17.

Exhibit 4: Loan Book Composition (%) FY17

Exhibit 5: AUM Growth Trend

3,500

3,000

2,500

2,000

SME

Two Wheeler

1,500

23%

60%

1,000

Housing

500

1,053

1,456

2,100

2,700

3,333

FY13

FY14

FY15

FY16

FY17

AUM

% Growth YoY

Source: RHP

Micro-financing is aimed at aiding the under-privileged in undertaking economic

activity, smoothening consumption and mitigating vulnerability to income shocks

(in times of illness and natural disasters), thereby increasing their savings. Focused

players like MAS, have been able to grow their book at healthy rate by catering to

these segments. Additionally, NBFCs have been gaining market share in the

growing credit market in India.

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Healthy return ratios: MAS has reported average ROE/ROA of 27.9%/3.2% over

last 5 years. Higher return ratios are largely driven by lower Cost to Income(C/I)

(33.5%) and lower provisioning expenses. C/I has declined from 43.7% in FY2013

to 33.5% in FY2017, and we believe C/I would continue to decline further.

Exhibit 6: consistently delivering strong returns

Exhibit 7: Cost to Income ratio (%)

3.4

3.0

3.3

2.9

FY13

FY14

FY15

FY16

FY17

FY13

FY14

FY15

FY16

FY17

ROE (%) ROA (%)

Source: RHP

Strong asset quality; sufficient CAR to support growth: Robust credit assessment

process and clever understanding of targeted market has helped the company to

keep GNPA at 1% over last 5 years. The Company has been strategically

expanding its footprint after understanding targeted market in detail. Presently, it

has very strong foothold in Gujarat & Maharashtra. As on 1QFY2018, CAR stood

at 23.8% and post IPO, CAR would further increase. With strong internal capital

generation ability, present high CAR and IPO proceeds, MAS would be able to

grow without dilution in the near term.

Exhibit 8: Robust Asset Quality

Exhibit 9: Capital Adequacy Ratio

1.2

1.0

1.1

1.0

23.8

19.7

23.8

1.0

0.9

18.1

18.3

0.9

0.8

18.5

16.9

16.1

0.6

12.3

0.4

0.2

FY13

FY14

FY15

FY16

FY17

Q1FY18

FY13

FY14

FY15

FY16

FY17

GNPA (%) NPA (%)

CRAR Tier -1(%)

CRAR (%)

Source: RHP

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Outlook & Valuation

High valuations underpinned by high growth potential and profitability: Close

peers, Capital First and Shriram City Union Finance are trading at ~3x FY2017

book, however both the companies report moderate ROE of 11%. At the upper

end of the price band, MAS is valued at 6.85x of FY2017 book value (Pre-IPO)

and on post dilution basis at 4.1x of Book value. Although valuations are on the

higher side, looking at the strong and sustainable growth and ROE prospects of

the company, we recommend a Subscribe to the issue.

Exhibit 10: Relative comparison

Adv Growth

EPS Growth

Company

GNPA

NPA

ROE

ROA

P/B

FY13-17

MAS

37.0

26.0

1.1

0.9

26.9

3.3

6.9

33.2

Capital First

27.0

40.0

1.7

1.0

11.9

1.6

3.1

22.9

Shriram City Union Finance

10.0

1.0

6.7

1.8

11.7

2.6

2.7

24.4

Source: Company, Angel Research, Valuation are based on FY17 numbers

Key risk

Risky Borrower

MAS’ operations involve transactions with relatively high risk borrowers. Any

default from the customers could adversely affect the business, results of

operations and financial condition.

Unsecured Portfolio

As of June 30, 2017, the unsecured loan portfolio was `5,10cr (22% of AUM) out

of On-book AUM of `2,276.2cr. These unsecured loans present a higher risk of

loss in case of a credit default as compared to loans to customers in other asset-

backed financing products.

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Income Statement

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17

NII

105

136

172

- YoY Growth (%)

Other Income

- YoY Growth (%)

Operating Income

106

126

162

200

- YoY Growth (%)

Operating Expenses

- YoY Growth (%)

Pre - Provision Profit

102

133

- YoY Growth (%)

Prov. & Cont.

- YoY Growth (%)

Profit Before Tax

106

- YoY Growth (%)

Exceptional Item

PBT Post Exceptional Item

106

Prov. for Taxation

- as a % of PBT

Reported PAT

Adj PAT

- YoY Growth (%)

Balance sheet

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17

Share Capital

Reserve & Surplus

101

124

242

Net Worth

106

128

160

183

332

Borrowings

514

723

1,031

1,308

1,264

- Growth (%)

(3)

Total Provisions

Other Liabilities

177

275

372

444

588

Total Liabilities

802

1,133

1,572

1,946

2,201

Cash and Cash equivalents

175

185

218

182

Investments

Total Loans & Advances

601

923

1,322

1,725

2,109

- Growth (%)

Fixed Assets

Other Assets

Total Assets

802

1,133

1,572

1,946

2,201

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Key Ratio

FY13

FY14

FY15

FY16

FY17

Profitability ratios (%)

NIMs

11.8

9.3

8.9

9.0

ROA

3.4

3.0

2.9

3.3

ROE

25.9

28.3

30.0

26.9

Cost to Income

43.7

39.4

35.8

36.9

33.5

Asset Quality (%)

Gross NPAs (cr)

104.8

151.2

208.1

279.1

352.7

Gross NPAs (AUM)

1.00

1.04

0.99

1.03

1.06

Net NPAs (cr)

89.3

122.2

170.9

239.3

305.5

Net NPAs (AUM)

0.85

0.81

0.89

0.92

Credit Cost

0.81

1.16

1.10

0.98

0.90

CAR

23.8

19.7

18.1

18.3

23.0

Tier1

16.1

14.0

12.3

11.0

16.9

Tier - 2

7.7

5.7

5.8

7.3

6.1

Per Share Data (`)

EPS

5.5

6.6

8.1

10.3

13.8

BVPS

21.4

25.8

32.3

36.9

67.0

DPS

0.5

0.8

1.3

4.3

3.2

Valuation Ratios

PER (x)

83.3

69.8

56.9

44.8

33.2

P/BVPS (x)

21.5

17.8

14.2

12.4

6.9

DuPont Analysis

NII

8.9

9.3

7.7

8.3

(-) Prov

1.1

1.5

1.4

1.3

Adj NII

7.8

6.3

6.4

7.0

Other Inc.

2.0

1.7

1.6

1.5

1.4

Total Income

9.8

9.5

7.9

8.4

Opex

4.7

4.3

3.3

3.4

3.2

PBT

5.1

4.6

4.5

5.1

Taxes

1.6

1.7

1.5

1.8

ROA

3.4

3.0

2.9

3.3

Leverage

7.6

8.3

9.4

10.3

8.1

ROE

25.9

28.3

30.0

26.9

Note- Valuation ratios based on pre-issue outstanding shares and at upper end of the price band

Oct 05, 2017

MAS Financials Services Ltd | IPO Note

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Oct 05, 2017