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MAS Financial Services IPO intends to raise up to Rs. 460 crore, comprising a fresh issue of Rs 233 crore and offer for sale aggregating to  Rs. 227 crore. The Gujarat based  company which is registered as non-banking financial company with the Reserve Bank of India plans to utilize the funds raised to augment its capital base to meet future capital requirements. Mas Financial Services considers itself a specialized financial firm  focused on fulfilling the requirements of lower and middle-income groups of the society spread across urban, semi-urban and rural areas including formal and informal sector.

Mas Financial Services IPO Issue Details

About Mas Financial Services

Mas Financial Services Limited is a Gujarat based NBFC with over two decades of business operations. Besides Gujarat the company operated across 5 other States and Delhi.

Mas Financial Services has presence in five Business verticals

• Micro-Enterprise Loans
• SME Loans
• Two-Wheeler Loans
• Commercial Vehicle Loans: This includes new and used commercial vehicle loans, used car loans and tractor loans);
• Housing Loans operated through their subsidiary – MAS Rural Housing & Mortgage Finance Ltd (“MRHMFL”).

Financials in Brief

Rationale for Investment

• Mas Financial Services  has exhibited good growth both in topline as well as bottom line in the last four years.
• Company meets its funding requirements from banks like HDFC Bank, Axis Bank, Union Bank, SIDBI, Union Bank, Central Bank of India etc.
• Mas Financial Services has  network of 72 branches in major cities of Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Tamil Nadu & Karnataka, through which over 3200 centers are catered
• As of September 30, 2016, The Company had more than 530,000 active loan accounts and 3,200 Customer.
• The Company also has commission based direct sales agents and revenue sharing arrangements with various dealers and distributors where part of loan default is guaranteed by such sourcing partners.
• Company has developed  extensive operational network in Gujarat and Maharashtra.
• Mas Financial Services is  also leveraging on the distribution network of partner MFIs, NBFCs, HFCs and franchisees. Loans of about 1800 crore were extended to 98 such institutional borrowers as on June 2017. This helps the company to extending its financial services to the under penetrated states and  segments. Part of a loan default is guaranteed by such sourcing partners or the sourcing intermediaries.
• Mas Financial Services has been able to put in a good performancee while still keeping NPA’s under check

• MAS Financial Services: Key Parameters   (in Rs. Crores)
  	2015	2016	2017	3m Jun 17
  Assets under Management (AUM)	2099.59	2699.85	3332.57	3451.74
  Growth in AUM(%)	44.17	28.59	23.44	14.3
  Disbursements	2088.4	3046.42	3468.17	899.5
  Growth in Disbursements (%)	42.68	45.87	13.84	3.74
  Net Interest Income	132.19	167.66	206	64.32
  Borrowings Cost (%)	9.09	9.21	9.47	9.05
  Yield (%)	15.93	15.18	14.87	14.65
  Spread (%)	6.84	5.97	5.4	5.6
  Net Interest Margin (%)	7.82	7.19	7.03	7.58
  Operating Expense / Av. AUM (%)	2.68	2.56	2.29	2.08
  Gross NPA (%)	0.99	1.03	1.06	1.14
  Net NPAs(%)	0.81	0.89	0.92	0.96

Lower growth in AUM and disbursements towards  end of 2017 and Q1Fy18 could be due to conscious decision in wake of Demonetization.

Concerns

• In a private placement about six months before the IPO, shares worth Rs 135 crore have been allotted at Rs 338.31 per share to Motilal Oswal Financial services.
• Mas Financial Services  presence is restricted to few states only 
• Mas Financial Services unsecured loan portfolio stood at Rs 510 crore  at end of June 1027. As seen in recent past loans to ,low income ground are prone to disruption due to major changes particularly those which are government driven.
• Company is likely to face competition from small finance banks. 

Broad Comparison with Peers

Assessment: Mas Financial Services IPO

• The company’s gross NPAs are stable and have been in the range of ~1% over last 3 years. The company has been able to maintain these figures even as it has witnessed a 25% CAGR in Revenue and  44% CAGR in Net Profits over the last 3 financial years. 
• Company’s business and financing products are primarily focused on middle and low income customer segments. Mas Financial Services has exposure to unsecured loan portfolio of  Rs 510.07 crore as on end June 2017 which carries some risks.
• Its long-term bank loans are rated ‘IND-A Stable Outlook’ by India Rating Agency. Earlier ICRA had withdrawn the rating of [ICRA]A-(positive) (pronounced ICRA A minus with a positive outlook) to the Rs. 743.41 crore long term cash credit facility of MAS Financial Services Limited (MFSL) on request of the company.
• In addition to its own network, Mas Financial Services has been  considerably  leveraging on the distribution network of partner MFI-NBFCS/NBFCS/HFCs/franchisees to extend its reach. 
• Similar to ICICI Lombard IPO, A private placement of 3,990,422 equity shares was  Motilal Oswal Financial Services in March/April 2017 at Rs 338.31 per share which is at discount to Mas Financial Services IPO price of  Rs 456-459.
• The financials and peer analysis indicate  that Mas Financial Services IPO is  priced fully. It can get some leeway due to  good growth in revenues and profits coupled with efforts at diversification into new areas.
• The presence of PE investors after the IPO lends some degree of confidence.
• Even though the Mas Financial Services IPO pricing is not too comfortable & giving large chunk of shares to Motilal oswal 6 months back at Rs. 338 raises eyebrows,,  I intend to apply to Mas Financial Services IPO.  My view is also influenced  by good listing of recent IPOs in last few months. However i do not consider this Mas Financial Services IPO as totally low risk investment.