Buy This Small Cap NBFC Stock As Shares Can Surge In Double Digit, Gave Over 45% Returns In 3 Months

Axis Securities in its recent report has recommended 'buy' the stock of MAS Financial Services Ltd. With the buy call, the brokerage has estimated an Rs 840 target price for the stock of the company. Considering the estimated target price by the brokerage, if the stock of the company is purchased at the current market price the stock is likely to gain 14% in 12 months. MAS Financial Services Ltd is a small cap NBFC (Non-Banking Finance Company) having a market cap of Rs 4,038.98 crore.

Stock Outlook

The Current Market Price (CMP) of the stock is Rs 738.90/share. The stock's 52-week low is Rs 460.30 recorded on 01 February 2022 and the 52 week high is Rs 820 recorded on 18 October 2021, respectively

Returns over the past 5 years

The stock of the company in the past 1 week has given 1.12% positive return. In the past 1 and 3 months, it surged 19.96% and 45.48%, respectively. However, over the past 1 year, it gave a negative return of 2.43%. In the past 3 years, the stock gave 19.47% positive return.

Raring to Go!

In the report, the brokerage stated, "We met with Mr Ankit Jain (CFO) and Mr. Dhvanil Gandhi (Business Development Manager) from the management team of MAS Financial Services Ltd. (MAS) to understand the company's business strategy and growth prospects over the medium term. While the focus during the testing times of COVID remained primarily on maintaining asset quality, maintaining balance sheet strength and adequate liquidity, post-COVID, the management has tweaked its strategy slightly. It continues to remain confident of clocking robust growth over the medium term. This cements our confidence in the long-term prospects of MAS, wherein we believe the company is well-placed to deliver superior growth and return ratios along with stable asset quality."

Growth to remain buoyant

MAS entered FY23 on a strong footing clocking an AUM growth of 30% YoY, driven by a robust disbursement growth. The management has indicated that the disbursement and growth momentum has sustained in Q2FY23 and is likely to continue in absence of any unforeseen disruptions. The management remains confident of clocking the AUM growth of ~25% CAGR over the medium term, thereby taking it to ~Rs 10,000 Cr over the next 2-3 years.

Wheels Portfolio to catch up over the medium term

MAS had earlier refrained from growing the wheels portfolio owing to an unfavourable risk-reward proposition and higher competitive intensity. However, with the CV cycle looking up and revival being seen in the auto segment, the management stated that MAS would refocus on growing the wheels book, thereby increasing its share in the overall portfolio to 20-25% from the current 11%.

 

Focus shifts to Direct sourcing Model

Pre-COVID a large part of MAS' AUM was sourced from its NBFC partners (~55%) while the balance 45% was through its direct channels. Though the company was keen on expanding its geographical footprint by increasing its branch network, COVID-related challenges deferred the plan. With COVID related headwinds now behind, the company will look to shift the needle toward direct sourcing. H2FY22 onwards, MAS has successfully reduced its dependence on its NBFC partners from ~55% in Q2FY22 to 45% in Q1FY23 and is expected to stabilize at current levels. With a view to expanding its branch network, MAS has added ~20 branches taking the branch count to 145 vs. 125 in FY22. By the end of FY23, the management expects the branch count to scale up to 160 and to 225 as the company exits FY24. While its focus so far has been primarily in Western India predominantly Gujarat (GJ), Maharashtra (MH), Madhya Pradesh (MP), and Rajasthan (RJ), the company will now look to add branches in newer geographies namely Delhi NCR, Chhatisgarh, Telangana and Andhra Pradesh. Going forward, growth from direct sourcing will outpace growth from NBFC partners.

The branches are generally small in size bearing a monthly cost of Rs 2.5-5 Lc with fixed costs being low and major costs being employee expenses. Thus, a branch turns profitable within 7-9 months of its commencing operations. Each branch has 1 manager, 1 credit officer, and a few feet-on-street/sales personnel.

Valuation & Outlook

MAS emerged stronger post navigating the pandemic-related headwinds and remains well poised to grow with macros normalising. With disbursement and AUM growth accelerating and the momentum expected to continue, we expect MAS to deliver a strong 26/25% YoY AUM growth over FY23/24E. With a shift towards the direct sourcing model, though Opex is likely to inch up gradually, improving NIMs, and benign credit costs will help MAS deliver a strong RoA of 3.3-3.4% and maintain its RoE between 15-17% over FY23-24E. Despite the sharp run-up in the stock (+21% in the past month), the current valuations (2.3x FY24 BV) seem reasonable given MAS' improving NIMs, strong return ratios, and stable asset quality and are also below its avg P/BV multiple of ~3x. "We maintain our BUY rating on the stock with a revised target price of Rs 840/share (2.6x FY24E BV), implying an upside of 14% from the CMP," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.