MAS Financial Services Ltd

NSE:MASFIN

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to the MAS Financial Services Limited Q1 FY '21 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shubhranshu Mishra from PhillipCapital India Private Limited. Thank you, and over to you, sir.

[Shubhranshu Mishra, analyst]

Thanks, Nora. Good afternoon, everyone. We've got Mr. Kamlesh Gandhi, Chairman and Managing Director of MAS Financial Services; Mr. Darshana Pandya, Director and CEO of MAS Financial Services; and Mr. Ankit Jain and other senior management team from MAS Financial Services to take us through the first quarter FY '24 earnings. Over to you, sir.

[Kamlesh Gandhi, executive]

So thank you, Shubhranshu, and good evening to all of you, and I'm very happy to welcome you all of you to this earnings call. I'm very happy to report a very robust quarter for the company. I shared with all of you through our presentation and press release. We had a very strong growth of 25% plus and to the precise 26.3% on a consolidated basis on AUM and around 25.8% and profit after taxes. So frankly, this is our 13th quarter of a very consistent and robust growth, backed up by very strong fundamentals as far as asset quality is concerned and capital editability is concerned. If I talk about asset quality, we are at around -- less than 1.5% on our next stage 3 asset as I talk to you. And with a very strong capital editability of more than 25%, we've been making us more confident in giving us enough room for a sustained growth going forward. We're very happy to share that we have strengthened our distribution also. In terms of distribution, we are now close to potentially 10,000 centers in our reach, along with our partnership with more than 150 NBF of the country as this makes us a pan-India is a pan-India presence, but with a very effective and efficient distribution, which is evident from the asset growth accompanied by the asset quality also. In our housing finance, the subsidiary of the parent group, that company also grew very strongly. We registered a close to 32% growth in year. Currently, at a smaller Acorn INR 450 crores is well poised to 1,000 crores within the next 2 years and we start contributing very meaningfully to the overall growth of the company. In our housing finance company, we are also very well placed as a capital [Indiscernible] up to 40% and once again, the next Phase II asset that is around 0.5%. So overall, a very strong growth for the quarter accompanied by very strong asset quality and a strong profitability and with a strong fundamental of a very strong capital base. If I take you through a few other important aspects during the quarter, we are in now 2,900 along with our housing finance company. And we are introducing, and we have a very strong team, which is contributing very meaningfully and which is contributing very efficiently to the overall growth of the company. In terms of digitization, we are well aware of the necessity of digitization, and we are continuously in the process of digitizing our processes, be it our loan addition system, loan management system, and we are also moving towards our BRE projects, whereby it will add us on credit business mix. And all this thing is added by our services through radio APIs and account aggregator, which numbers more than 25 to 27 in number. So all in all, a very strong quarter. And as we have demonstrated over last now over 6 quarters now, post-COVID continuous growth of 20%, 25% plus while maintaining a very, very strong balance sheet and very strong asset quality. We are very confident that going forward, there'll be in a position to maintain this growth. as far as this year is concerned, we are going to pass away -- we are poised to cross a very important milestone of crossing INR 10,000 crores maybe by Q3 or Q4. That will be a very important milestone in the journey of this company. And I think we are striking distance away from it. So I mean with these remarks I'll hand over -- with these remarks, I will hand over to my colleague Darshana, who will take you through the detailing of the numbers. The numbers are before you. And also, my colleague, Ankit Jain will take you through the liability management. As you know that we have one of the strongest liability management with LAP a sufficient liquidity always available with us and with some capabilities to raise the LAP as well and demonstrated our capabilities to raise that and competitive rates throughout last year and with the increase in MCLRs in the rate, which will be elevated by uniting detail. But nonetheless, we could maintain our needs and ROS. So with this remark, I will try to -- I will pass on this to Darshana to kick forward on to take you on the detail of numbers.

[Darshana Pandya, executive]

Thank you, sir. Good evening, everyone. I'm happy once again to connect to all of you. As I mentioned that we had completed the last year with robust numbers, and we continue to move more ahead in Q1 FY '22 also. So if we look at the AUM as on 30 June, we stand at around INR 8,417 crores as compared to INR 6,683 crores, which is 25.9% growth in AUM. And if you look at the configuration, around 12% portfolio share is from other wells products to Wheeler and commercial vehicles, 84% is MSME loans and 4% is on salary personal loans. And if we look at the growth numbers for each product, MAL loans has grown by 15.4% from INR 3, INR 3,462 crores to INR 4021 crores. SME loan, there is a growth of 25.85% from INR 2,443 crores to INR 3,074 crores. Two-wheeler loans has shown a robust growth of 47.3% from INR 386 crores to INR 570 crores. Commercial vehicle loans has grown by 34.87% from INR 332 crores to INR 448 crores and salary personal loan being the -- it was introduced during the last June 22 quarters. So the portfolio as on June 23 is INR 302 crores. And last year, it was INR 59 crores.If we look at the profitability numbers, total income has grown by 41.60% as compared to Q1 '23, which is INR 280 crores from INR 197 crores Profit before tax has grown by 22.83% from INR 61.7 crores to INR 7.80 crores. Profit after tax has also grown by 24.16% or some INR 46 crores to INR 57 crores Portfolio quality also remained stable which last year, it was 2.15% gross Stage 3 and net Stage 3 was 1.52%. This year it is 2.13%, gross stage 3 and net sales fee is 1.47%. And we continue to carry a management overlay of around INR 21 crores, INR 46 lakhs as on 30 June '23. Now coming to our housing numbers. Here also, we can see the robust growth. So assets under management portfolio has grown by 31.91% from INR 341 crores to INR 450 crores. Total income, there is a growth of 55.08% from INR 8 crore 78 INR 13 crores, INR 1 lakh. PBT increased by 51.97% from INR 13 to INR 2 crores, INR 2 lakhs. Profit after tax, there is an increment of 57.97% from INR 1 crores to INR 1 crores, 16 lakhs. If we look at the quality here also, we could maintain the quality of the portfolio. So as on June '23, our Stage 3 as it is 0.71%, and net stage 3 is 0.50% as compared to 0.70 and 0.52, respectively in the previous periods. Here also, we are maintaining around INR 3 crore lakhs of management overlay as above. So this was all about the key numbers. Now I request Ankit to take you through the liability management.

[Ankit Jain, executive]

Yes. Thank you, ma'am. So to further elaborate on the liability management, we through the efficient and liability management was able to maintain with cash and cash equivalents of around INR 700 crores during the quarter and unutilized cash facility of around INR 375 crores. In addition, we had enter on hand to the tune of more than INR 375 crores in the form of term loan direct [Indiscernible] and co-lending. In the last quarter, company is around INR 65 crores direct some transaction. The company has further more than INR 500 crores sanction on hand, which we will living during the next quarter. The company outlook portfolio through DA and coal lending stands at around 21% of the total AUM. We have a strategy in to maintain around 20% to 25% of AMS outlook through direct assignment and coal lending transactions. The company has available capital facility of around INR 169 crores, all of which we maintain a reutilization of 65% to 70% debt poses kept as equity offer. We successfully rolled over around INR 350 crores as Stockton working capital loans, which sublimited the crest limit. In the last quarter, we raised around INR 375 crores term loan because further help us to expend the asset liability maturity pattern. We have assessed the structural liquidity for the period, and these are the assessment, there is no negative impact on liquidity and the cash can all the committed buckets remain positive. We remain strong on the capital so whereby the cable for the quarter was 2.31%, with Tier 1 capital of 211% and the debt equity of 3.79x. On the cost of borrowing for the quarter was at 9.6%. Similarly, for the last June quarter was 8.7% and March quarter was 9.2%. The increase in Italy because of -- as you know, because of the increase in the RAP rate and MCLR reset happening in the current quarter. We envisioned that the cost of borrowing to settle around $95 to $98 per quarter in the current year. Thank you.

[Kamlesh Gandhi, executive]

Thank you, Ankit. And now we are open to take the questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sumit Rathi from Centrum PMS.

[Sumit Rathi, analyst]

Sir, a couple of questions. First, I wanted to understand how much of our total book is secured and how much is unsecured? And what kind of collateral do we take in our 85 percentage odd kind of book of SME and micro lending?

[Kamlesh Gandhi, executive]

So in terms of our MS portfolio when you talk about yearly and when we talk about SME, these are the 2 products where we do working capital loans to the enterprises, we take current asset as [Indiscernible] and in cash flow with assessment, and we do not take any other collaterals other than the current asset. So in terms of the unsecured portfolio must be around the 20% to 25% of the total business around it, where there is no [Indiscernible] of current assets. That is the 75% of odd portfolio comprising of hypersecretion of current assets to less commercial buses.

[Sumit Rathi, analyst]

Great. Sir, as compared to historical numbers, I guess it has been a conscious strategy to reduce our dependence on our partners. And probably we are working on low leverage. Are there any perspectives you would like to give on a long-term basis. How leverage can improve our ROE going forward? Or what's our perspective, how much off book we would like to have? Any color on that? That would be my last question.

[Kamlesh Gandhi, executive]

So in terms of distribution, I've been sharing with all of you in a few quarters that we are very happy with both the distribution, our direct distribution and our distribution through NBFC. But our direct distribution is increasing at a faster pace as compared to a distribution with NBFC. So if I give a medium-term view, I think our direct distribution will consist of anywhere between 70% to 75% with the direct distribution and around 25% to 30% with distribution through NBFC say right now. In terms of leverage, we are right now at 3.79% on scale , INR 10,000 crores, we see maintaining anywhere between 4.25 to 4.5x of that equity.

[Operator]

[Operator Instructions] The next question is from the line of Divyansh Gupta from Latent Advisors.

[Divyansh Gupta, analyst]

Yes, I was looking at the personal loan portfolio, while, let's say, on a year-on-year basis, the personal loan book has grown about 6x. But on a quarter-on-quarter basis, actually the static are gone down by a couple of million rupees. So can you tell about what happened, why isn't the book growing on a quarter-on-quarter basis?

[Ankit Jain, executive]

So when we -- when we start any new product, we don't have a quarter-to-quarter target, it is on a yearly basis. And we see our personal loan contributing around 5% to 7% of our total AUM on a yearly basis. And the fluctuation quarter-to-quarter is the number of front maybe because of above the number of tons working, the number of projections versus log-in and other factors that might be responsible for a lower disbursement. But we don't focus on a quarter-to-quarter growth as far as our new products are concerned. And as I said, is you personal constitute around between 5% to 7% going forward.

[Divyansh Gupta, analyst]

Got it. Is there any stress that you were seeing in the personal loan portfolio due to which, let's say, the, let's say, a tightening was done for the book or something like that?

[Ankit Jain, executive]

No, we are not seeing that stress, but adapting to various credit screen from time to time is a very continuous process depending upon the portfolio analysis we do. And as I said, this being a new product, we will be very cautious on any of the changes we made in our traded any of the changes we see in the portfolio.

[Divyansh Gupta, analyst]

Got it. And one more question with respect -- rather one request. In the presentation, I could not find the asset liability maturity profile. If I can request you to include it next time because it also gives us a sense of what kind of duration you are borrowing and what is the asset profile looking like? If that can be added, that will be very helpful. to understand the...

[Ankit Jain, executive]

That can be added and you can request offline also [Indiscernible].

[Divyansh Gupta, analyst]

Got it. And one last question I was seeing, let's say, from either on a sequential basis or on a year-on-year basis, your 30 DPD is actually on a higher AUM book has increased, like from 1.09 to almost 1.91. And on a combined basis, also if I look till 60 DPD, the book has been on a year-on-year basis actually gone up and on a sequential basis, almost flat. So anything which is driving, let's say, a higher 1 to 30 DPD for the quarter sequentially?

[Ankit Jain, executive]

I want to compare it -- if you compare with March because you have to compare the March quarter to June quarter.

[Divyansh Gupta, analyst]

Yes, I'm looking at only. So 1.8 to 1.9.

[Ankit Jain, executive]

But you have to see then whether it has improved because if you see 6 in March quarter was 1.13, which is 0.6% in this quarter.

[Divyansh Gupta, analyst]

In some rollback from the higher...

[Ankit Jain, executive]

Yes. So therefore it has improved.

[Divyansh Gupta, analyst]

Got it. And overall NPAs have reduced. So from which sector or which line of business was there more recovery, if you can give a flavor of that?

[Ankit Jain, executive]

So that is major contribution from the majority of the portfolio that we own, that is from [Indiscernible] medium enterprise loans because that is 82% of our portfolio. So better performance there result into a better quality of assets.

[Operator]

The next question is from the line of Shubhranshu Mishra from PhillipCapital India Private Limited.

[Shubhranshu Mishra, analyst]

Sir, if we can please explain the percentage contribution from our NBFC partners? And what that accrues in our AUM now? And what is the plan 3 to 5 years from now, what will be the number going forward? Also, if we can speak on the write-offs and which all segments contributed to those write-offs? And how do we look at the micro enterprise lending going forward? And what are the risk control measures will likely take in that specific segment, sir?

[Kamlesh Gandhi, executive]

As I said earlier, our NBFC distribution currently stands at around 37%, which in the medium term, say, with the next 3 to the next 3 years, you should see that I think anywhere between around 30%. And in long term, it can be a between 25% to 30%. So our NBFC distribution will contribute around 25% to 30% on a 5-year horizon. In terms of our micro enterprise loans, as you say, in our MSME portfolio, we are more focused on SME. And while our focus on annual continues, but SME will contribute more because of the ticket size and the tenor as compared to annual. So within the configuration of our MSR portfolio within the medium term, we will see a 70-30 or 60-40 ratio between SME and annual in favor of SME going forward. And in terms of write-offs, I think you shared the numbers.

[Darshana Pandya, executive]

Yes, the total write-off for the period for Q1 is INR 10 crores, INR 47 lakhs. Out of that INR 7 crores, INR 6 lakhs from MSM is still being the new product we write-off. SME loans is INR 1 crore 7 lakhs. 2-wheeler is INR 91 lakhs, and SME is 86 lakhs.

[Shubhranshu Mishra, analyst]

Understood. And when we look at the salaried personal loans, what kind of companies are we catering to these CATC, Cat B companies? And what proportion of these loans will be less than -- what proportion of this book will be less than 50,000 size?

[Kamlesh Gandhi, executive]

You see average ticket size is around INR 2 lakhs of. under companies which we cater to are the ones, we will do categorize them. So in terms of the parameters are being listed or size, you can call them the B or C category companies. But we are circumstances that have affected those companies' financial health is good. And moreover, we look into that at the employee credits in terms of the inset and in terms of the vintage with the company and their overall experience. These are the basic criteria which we look at while extending the loans to them. And our experience so far over a year has been encouraging to take this portfolio anywhere to around between 5% to 10% of our AR.

[Shubhranshu Mishra, analyst]

Understood, sir. And how do we look at the vehicle finance portfolio in the CV portfolio is mostly for LCV, what kind of growth are we looking at going forward?

[Kamlesh Gandhi, executive]

So the economy going back on track. I think you will agree with me the sale portfolio is directly related to the growth in the economy. So with the economy coming back to normal of around 6% plus growth, I think we will also see good growth and a good asset quality going forward as well as how much is because because in the past few years, we are not finding a good risk-adjusted return as far as commercial vital financing was concerned and hence not much capital was allocated to. But presuming that this is going to be a consistent growth going forward, I see commentarial portfolio growing anywhere between 25% to 30% for us.

[Shubhranshu Mishra, analyst]

And what kind of yield do we get in CV financing, sir?

[Kamlesh Gandhi, executive]

Every yield range is depending upon the product and the customer profile, the average yield ranges in 16% to 19%.

[Shubhranshu Mishra, analyst]

Understood, sir. And what will be the average yield in personal loans, sir?

[Kamlesh Gandhi, executive]

The average yield in personal loans will be around 21%. This is between 19 to 21.

[Shubhranshu Mishra, analyst]

Understood, sir. And if we can also speak on the liabilities, sir. What are we looking at in terms of the repricing going forward in the next 2 quarters, what kind of costs are we going to incur in onloading newer liabilities? How are we looking at the securitization market going forward? So if we can come back on that.

[Kamlesh Gandhi, executive]

See, on the liability side, if I give the configuration, we are well capitalized at around 25%. We would like to assign anywhere between 20% to 25%. We are close to 15% to 20% of cash credit limit because of the net profile of our assets, we do not find any asset liabilities might even you bring cash credit, but it helps us to reduce our cost, converting those cash credit into WCDL limits, whether we get an base. And the rest will be around 35% to 40% contribution is from term loans and around 12% to 15% we see coming from capital markets in terms of bond placement. I think this will be a broader configuration and as far as we are concerned, we have a lot of traction on assignment transactions given our portfolio being qualified as priority sector lending and retail lending for the bank. But as a good diversification mix, we'd like to limit those to those assignments are back to around anywhere between 20% to 25% is to have the right diversified resource base. In terms of the borrowing cost as Ankit shared, we see this has been picked out really 5, 10 basis points here or there. But I think the majority of the MCLR reset has happened for us. And going forward, if we expect a status quo in the report and going forward after good demand situation as far as the macros are concerned. And when the rates start going down, we can also see some reduction in the rate. But currently, we see this cost of funds almost picking out at current levels.

[Operator]

[Operator Insructions] The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

So again, just a continuation of what you answered who is where you suggested that MCR resets have already happened in majority of your bank term loans. So this cost of borrowing increase from current levels of 9.65% and what I'm fitted for 9.75%, 9.8%. We wanted to understand from where are these going to come from this will be in the nature of, again, some more MCLR reset that will happen? Or this will be more in the nature of some debt capital market borrowings running down and which have to be replaced with a higher cost borrowings. That is the first question that I wanted to understand. The other question is, sir, I don't know if I heard you right, but please correct me if I'm wrong. I mean, somewhere I heard that you're guiding that we will be able to maintain our margins. So underlying that, I mean, is the belief that we will be able to kind of continue to take yield increases from here. Is that the thought process to maintain the margins?

[Kamlesh Gandhi, executive]

So to answer the liability front, I think when we talk about the cost setting at over between 9.6 to 9.85. It was a combination of a reset of rates across all the sources of funds. Maybe the new loans which we take will be at the NCL what is already we are taking right now because there is a rate case and like IC and bank maintaining their MCLR plus whatever premium they want to maintain that will stabilize. Our capital market borrowing will also come at a renewed rate as compared to what we have done last year. Further that ML M&A tax benefit has also been withdrawn. So that rate will also be recalibrated to the newer rate. So all the sources of funds will have a recalibrated rate, so to speak. And that will take our borrowing now to end year between 9.65% to 9.85% currently until there is a reset of MCLR or borrowing rates going down. In terms of maintaining our means yes, we could pass on this rate hike to the borrowers successfully and we think that this type of rate hike to be passed on to the borrower is possible for us given the segment that we work in. And we see that the mean so be maintained anywhere between 6.5% and 5% to 7% and that we demonstrated this quarter also, whereby our new sectors and were at around 6.8% this quarter despite of the rise. So we have been in a position to maintain the means for going forward.

[Abhijit Tibrewal, analyst]

Just one more question here. In the context of so much that is being discussed in terms of this first loss before guarantee FLDG guidelines up to 5% that has been allowed. So just wanted to understand, I mean, 2 things here. One is in terms of, I mean, few digital partners that we've recently started working with have helped the commercial arrangements evolved to now factor in the FLDG arrangements? And secondly, sir, when you work with your NBFC partners, I don't want to call it an FLDG. -- but what are the terms like with regards to when you work with these NBFC partners? Are the risks entirely on your balance sheet? Or given that, I mean, there is some -- at least in terms of digital partners from pad being allowed, then there also -- I mean, partners have started favorably looking at giving some pledges?

[Kamlesh Gandhi, executive]

Since I think with the partner is that we understand the partnership brings about individual expertise to the core, whereby the originator will originate service and will be at alliances to a part that they can be shared and so will be the revenue share. So in terms of our fintech partnership where the digital lending due to detail lending guidelines, but it related to 5%. I think if you see last quarter, we had reduced our disbursement of fintech partners whereby we had more FIs because of our loss anticipation. Now with the partners do we contemplate to work, we are going to have a renewed rates attached to them in order to cover the risk and we faced. So for many of the partners, the rate might increase by 1% or 2%, depending upon the portfolio, the quality that we have seen on your business during their working over the past few quarters. So that will put us at an equilibrium in terms of our needs because whatever more losses than we expected will be recruited from the east. And in terms of our NBFC partners where there are yet to be any clear guidelines on nondigital lenders. In terms of our NFC partners with a various type of arrangement from complete reports to them to a partial report to them, which is then built up in the various type of pricing, thus maintaining our needs the way we would like to maintain.

[Operator]

We have the next question from the line of Anuj Sharma from M3 Investment.

[Anuj Sharma, analyst]

So maybe I'll just say [Indiscernible]. So our operating expense ratio has been controlled and partly because of the growth in the AUM. But where do we see it in terms of going ahead, when you just benchmark it to the loan growth we are seeing? And how optimized it is right now and where do we see 3 to 5 based on the line?

[Kamlesh Gandhi, executive]

If I understood your question correctly, the operational expenditure has been slightly less because of the denominator impact, as you rightly understood. But as we increase our retail distribution, I see your operating expenditure anywhere between 2% to 2.5%. But how we look at it is that on the overall unit dynamics on our direct retail distribution, as will also improve. So ultimately, our ROA will be maintained anywhere between 2.7% to 3%. So our focus is to say that that we maintain ROA between 2.75% to 3%, which is a result of the yields we get the cost of fund, the operational cost and the credit cost for each product. So if you see only from the standpoint of operational expenditure, it has a potentiality to settle anywhere between 2% to 2.5%.

[Operator]

[Operator Instructions] The next question is from the line of Yash Soni from AK Capital. As there's no response from the current participant, we will move to the next question, which is from the line of Ojasvi Khicha from PGIM India Mutual Fund.

[Ojasvi Khicha, analyst]

If you can drive, I mean, where did your guidance full year FY '24 on credit cost. And if I look at the long term given direct distribution mix going up. I mean, historically, we have seen credit cost of 1.82% also. So given your -- I mean, higher mix for direct distribution, could it reach those levels medium term?

[Kamlesh Gandhi, executive]

Yes. I think currently, our credit cost has been around 1%, that the credit cost for the quarter was around 0.9% to 1%. And once again, as we increase our direct distribution, once again, the unit dynamics will come into play. And currently, the credit cost in partial of the credit cost is absorbed by the partners to the extent we share the revenue. So when the direct distribution increases that credit costs will come on the book, but at the same time, our yields has also increased maintaining our ROEs anywhere between 2.75% and 3%. So what looks like around 1% credit cost on a services way on a higher distribution of around 70% might look at around 1.5% to 1.7% of our credit cost. But at the end of the day, the ROE will be maintained because of the higher yield which is currently being absorbed by the partners.

[Operator]

As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

[Kamlesh Gandhi, executive]

So thank you so much, everyone, for joining this con call. And let me reiterate the commitment of Team MAS of excellence through endeavor and we are very confident going forward to achieve the growth of anywhere between 20% to 25%, which results into doubling or even every 3 to 4 years a complied by robust asset quality and profitability. Thank you.

[Operator]

On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.