MAS Financial Services IPO: Here’s All You Need To Know

Non-banking financial company MAS Financial Services Ltd. is looking to raise Rs 460 crore through an initial public offering that opens tomorrow.

Of this, Rs 233 crore will be raised by issuing fresh shares at Rs 456-459 apiece while the rest will be an offer for sale by existing shareholders. At the upper end of the price band, the lender to small businesses and individuals will be valued at Rs 2,510 crore.

Who's Selling Shares?

The Netherlands-based development bank FMO and its German peer DEG will completely exit the company by offloading their stakes in the IPO. Private equity investor Sarva Capital will sell 60 percent. Post the offer, promoter shareholding will fall to 73.2 percent from 80.7 percent.

Utilisation Of Funds

The funds raised by issuing new shares will be used to meet future capital requirements.

Business

• Incorporated in 1995, MAS Financial provides small and micro enterprise loans, auto loans and housing loans.
• The company's assets under management stood at Rs 3,451 crore as of the first quarter of the financial year 2017-18.
• The micro enterprise loans comprises 58 percent of its total assets.
• It also has a high share of wholesale lending with loans extended to microfinance companies and NBFCs forming 47.7 percent of its assets in the quarter ended June.
• The share of retail loans stood at 52.6 percent in the same period.
• As of June 30, the NBFC had more than 500,000 active loan accounts served through 121 branches.

Key Risk

MAS Financial faces geographic concentration risk with 60 percent exposure to Gujarat alone, 20 percent to Maharashtra and the rest coming from other states.

Financial Highlights

• Net interest income clocked 23 percent compounded annual growth rate in five years to March, while net profit rose at 26 percent.
• Net interest margin stood at 6.6 percent as of March.
• Gross bad loan ratio remained around the 1.1 percent mark in the last five years.
• The company has superior return ratios compared to peers.
• Provision coverage ratio stood at 15 percent.

Peer Comparison

At the upper price band, MAS Financial is valued at 6.8 times its book value for the year to March and at 4 times its book value on a post-dilution basis. That's higher than peers such as Shriram City Union and Capital First and is comparable to that of Bajaj Finance.

Brokerages' Take

Quant Broking

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• Healthy business momentum, prudent management practices and well-diversified presence across developed geographies
• Healthy trends of return ratios.
• Raising considerable capital for expansion purposes.

IIFL Wealth

• Recommends ‘Subscribe'.
• Relatively stable profitability franchise compared to other NBFCs of similar size.
• Valuation at 3.7 times price-to book on a post-money basis; should be palatable for long-term investors.

Prabhudas Lilladher

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• Fairly priced compared to peers.
• Superior return ratios.
• Strong lending growth.

Angel Broking

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• Valuations are on the higher side.
• Strong and sustainable growth and ROE prospects.