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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 6000.00 | ACUITE AA- | Stable | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 200.00 | ACUITE AA- | Stable | Assigned | - |
| Commercial Paper (CP) | 300.00 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding | 6500.00 | - | - |
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Rating Rationale |
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Acuité has assigned its long-term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) on the Rs. 200.00 Cr. proposed non-convertible debentures of MAS Financial Services Limited (MFSL). The outlook is 'Stable'.
Acuité has reaffirmed its long-term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) on the Rs. 6000.00 Cr. bank facilities of MAS Financial Services Limited (MFSL). The outlook is 'Stable'. Acuité has reaffirmed its short-term rating of ‘ACUITE A1+’ (read as ACUITE A one plus) on the Rs. 300.00 Cr. Proposed Commercial Paper Programme of MAS Financial Services Limited (MFSL). Rationale for reaffirmation The rating continues to factor in the strong management team, established presence in MSME and retail financing backed by extensive distribution network and partnership arrangements with various NBFCs. The rating considers the sustained improvement in the scale of operations marked by 20 percent growth in its AUM. The AUM of the group stood at Rs. 10,216 Cr. as on Dec 31, 2023 as against Rs. 8,506 Cr. as on March 31, 2023 (Rs. 6,565 Cr. as on March 31, 2022). The rating further factors in the strong resource raising ability, healthy asset quality metrics, healthy capital structure and liquidity buffers. The company’s capital adequacy (standalone) remained comfortable at 24.47 percent with Tier I Capital of 20.59 percent as on Dec 31, 2023. The group has funding relationships with Banks and Financial Institutions with a lender base of over 30 lenders and well diversified resource profile. Additionally, the company maintains healthy liquidity in the form of sufficient cash and bank balance and unutilized lines to meets its funding requirements. The rating is however constrained by the scale of operations and high portfolio concentration in three states comprising ~61 percent of the AUM as on Dec 31, 2023. The rating further remains constrained on account of concentration in its Retail Asset Channel (RAC) portfolio. Under the retail portfolio, the group has exposure to Micro enterprise loans (~26 percent as on Dec 31, 2023). The inherent risk of large ticket size lending under the RAC portfolio and any deterioration in credit profile of borrowers under the micro enterprise portfolio continues to remain a key rating monitorable. Going forward, the ability of the group to profitably scale-up its operations while maintaining healthy asset quality will be key monitorable. |
| About the Company |
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Incorporated in 1995, Gujarat based MFSL, is the flagship company of MAS group (i.e. MAS Financial Services Limited (MFSL), MAS Rural Housing and Mortgage Finance Limited - (MRHML) and MASFIN Insurance Broking Private Limited). MFSL is registered with RBI as a Non deposit-taking, non-banking financial company. MFSL provides financing directly and indirectly to Micro Enterprises (MEL), Small and Medium Enterprises (SME), along with loans for commercial vehicles and two wheelers. MFSL primarily operates in 9 states, namely, Rajasthan, Gujarat, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, Chhattisgarg, Uttarakhand and one Union Territory, National Capital Territory of Delhi, through a network of 181 branches as on Dec 31, 2023. MFSL’s equity shares were listed on BSE and NSE in October 2017, it currently has a market capitalization of Rs. 4,890 Cr. MFSL’s shareholders included marquee investors such as Axis Mutual Fund, IDFC Sterling Equity Fund, TATA AIA Life insurance and Vistra ITCL I Limited amongst others. The promoter and promoter group hold 73.73 percent of the equity shareholding in MFSL as on Dec 31, 2023.
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| About the Group |
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MAS Rural Housing Mortgage Finance Limited (MRHMFL), incorporated in 2008, is a no deposit taking Housing Finance Company registered with National Housing Board. MFSL held 59.67 percent stake as on Dec 31, 2023 and the remaining is held by promoters of MFSL. The company is engaged in providing housing loans, commercial loans and project loans for affordable housing segment.
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| Unsupported Rating |
| Not applicable |
| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has consolidated the business and financial risk profiles of MFSL, MRHMFL and the company’s newly incorporated subsidiary MASFIN Insurance Broking Private (MFIBL) (Hereinafter referred to as ‘MAS Group’) for arriving at the rating. The consolidation is in view of common promoters and management, integrated businesses, shared brand name, and significant operational and financial linkages between these entities.
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| Key Rating Drivers |
| Strength |
| Established presence in MSME lending through an extensive branch network and partnerships with other players
MFSL, the group’s flagship company, commenced operations in 1995 by extending credit to Micro, Small and Medium Enterprises (MSMEs) and two-wheeler financing. The group gradually expanded its geographical reach to other states beyond Gujarat and diversified its product portfolio to include Commercial Vehicle Loans including used car loans and tractor loans. Established in 2008, MRHMFL, a subsidiary of MFSL, has a presence in housing, commercial and project loans with a focus on affordable housing segment. Further, during August 2022, the group has incorporated a new subsidiary MASFIN Insurance Broking Private (MFIBL) which will be providing insurance broking services and is yet to start its operations. Presently, MAS group’s operations are spread over nine states and the group operates through a network of 181 branches. MAS group also has established relationships with dealers and intermediaries for supporting their forays in commercial vehicle and two-wheeler segments. Besides direct lending to MSME and CV segment, the Group lends to NBFCs and MFIs for onward lending to the above segments. The operations of the group are headed by Mr. Kamlesh Gandhi (Founder, Chairman and Managing Director), who has over three decades of experience in the financial services sector. He is supported by team of professionals with significant experience in various functional areas. The entity's Asset under Management has improved to Rs. 10,216 Cr. as on Dec 31, 2023 as against Rs. 8,506 Cr. as on March 31, 2023. (Rs. 6,565 Cr. as on March 31, 2022). Acuité believes that MAS Group’s business profile will continue to benefit from the established presence in the retail and MSME segment across diverse product categories, backed by strong managerial support and established distribution network/partnership arrangements with various NBFCs. Healthy capitalization levels; Business model based on regular sell downs expected to sustain the healthy capital buffers MFSL’s capitalisation levels continue to remain healthy reflected by overall Capital Adequacy Ratio of 24.47 percent as on Dec 31, 2023 (25.25 percent as on March 31, 2023), mainly by way of Tier I capital of 20.59 percent (20.79 percent as on March 31, 2023). The group’s capital structure is supported by networth of Rs. 1,545 Cr. as on March 31, 2023 which has improved from Rs. 1,373 Cr. as on March 31, 2022. Networth as on Dec 31, 2023 stood at Rs. 1,746 Cr. The entity's Assets under Management (AUM) has grown from Rs. 1,391 Cr. as on March 31, 2014 to Rs. 10,216 Cr. as on Dec 31, 2023 (on balance sheet exposure Rs. 7,954 Cr and off balance sheet exposure of Rs. 2,262 Cr.). The philosophy of MAS group to sell down a portion of its originated loans on a regular basis helps in managing its liquidity, profitability and also its capital requirements. Since a part of the portfolio is assigned on a regular basis, the growth in the on-book portfolio is limited, thereby keeping its capital and debt requirements relatively moderate. As on Dec 31, 2023, direct assignment transactions (incl. co-lending) comprised 23.93 percent of the overall liability profile of the group. The healthy performance of the past pools over a period has enabled the company to regularly raise funds through this route from various banks. The continued appetite for the group’s pools reflects the confidence, the bankers (buyers of pool) have in the group’s underwriting and monitoring standards. Acuité believes that MAS group has demonstrated the resilience to grow across various business cycles and will be able to sustain its financial position on the back of its healthy capitalization buffers and maintaining a prudent capital structure. Strong resource raising ability and diversified funding profile MAS group has established relationships with over 30 lenders; public and private sector bank and financial institutions, some of these banks engage in both lending via bank borrowings and purchase of pools i.e. direct assignment transactions. ~90 percent of MAS on book exposures comprises of loans qualify for priority sector lending, which has high acceptability among banks for direct assignment transactions. The funding mix (based on AUM) comprises of bank borrowings (term loans and cash credit limits) along with resources raised through direct assignment transactions. As on Dec 31, 2023, the funding mix comprised direct assignment funding of 24 percent (including co-lending), cash credit of 16 percent, term loan of 52 percent, non-convertible debentures of 5 percent and subordinated debt of 3 percent. Acuité expects the group to continue to benefit from diversified funding mix and the Group’s ability to raise resources from various banks and financial institutions. Stable financial performance At a consolidated level, the group’s Profit after Tax (PAT) grew at Rs. 205.82 Cr. as on March 31, 2023 as against Rs 161.20 Cr. as on March 31, 2022 (Rs 145.5 Cr. as on March 31, 2021). The consolidated PAT for 9MFY24 stood at Rs. 184 Cr. The group has maintained stable profitability despite increase in its operating expenses led by increase in its branch network. The operating expenses of the group as a percentage of its earning assets increased to 2.38 percent in FY23 as against 1.87 percent in FY22. The profitability continues to be healthy as reflected in the Return on Average Assets (ROAA) of 2.88 percent and Net Interest Margin (NIM) of 5.99 for FY23. Acuité expects the Group to sustain improvement in earning’s profile in the current operating environment. |
| Weakness |
| Significant exposure to NBFC loans; susceptible to asset quality moderation
MAS group has high exposure to segments such as NBFCs and MFIs (also referred to as RAC) and MSME’s. The group’s exposure to NBFCs and MFIs including partnership arrangements as a proportion to the overall AUM was ~32 percent as on Dec 31, 2023. MAS group has a policy of lending to NBFCs and MFIs for onward lending towards loans to MSME segment, Commercial Vehicle and Two Wheelers loans i.e. segments in which MAS group has its presence and the dynamics of which is understood by these NBFCs/MFIs. Notwithstanding the controls and the monitoring practices adopted by MAS in this segment, the group remains exposed to the risks inherent in large ticket lending, since most of the borrowers are typically small to medium size NBFCs (asset size less than Rs. 500 Cr.), where the track record is yet to be fully established. The group also engages in partnership agreements with various NBFCs out of which some are backed by FLDG. These NBFCs do the sourcing, monitoring and servicing of the loans for MAS. Acuité believes that the group’s ability to profitably scale up its operations under the new regulatory guidelines while containing asset quality pressures will remain a key rating monitorable. |
| ESG Factors Relevant for Rating |
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MFSL belongs to the NBFC sector which complements bank lending in India. Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and social development, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. MFSL offers financial services for Micro Enterprises Loans, SME Loans, Home Loans, Two-Wheeler Loans, Used Car Loans, and Commercial Vehicle Loans to satisfy their varied needs. The company primarily focuses on the vast lower income and middle-income groups of the society, spread across urban, semi urban, and rural areas, and including formal and informal sector. They are leveraging on the distribution network of partner MFINBFCS/NBFCS/HFCs/franchisees, thus extending financial services to the underpenetrated states and the BOP segment. It is important for MFSL to assess the sustainability factors mainly related to environment, social and corporate governance practices for its lending portfolio. It has a well-articulated CSR policy, aiming to support the advancement of education, to provide access to healthcare and other health initiatives/projects for the less privileged. The Company prefers to make contributions to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities. It is the company’s continuous endeavor to increase its CSR impact and spend over the coming years, supplemented with continued focus towards rural development, promoting health and sanitation. The company has a well-placed grievance redressal mechanism; it has made adequate disclosures related to board and management compensation and outlines the policies related to diversity and ethical business practices in its code of conduct. The company’s board comprises of five independent directors out of total seven directors which includes two female directors.
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| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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MFSL has adequately matched asset-liability profile as on Dec 31, 2023 with a cumulative surplus in all maturity buckets. The company’s assets comprise short to medium term (average of 18-24 months) exposures depending on the asset class against which the borrowings are in the form of two to three-year term loans and cash credit limits. The company has adequate liquidity buffers marked by cash and bank balances of Rs. 845.46 Cr. as on Dec 31, 2023.
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| Outlook: Stable |
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Acuité believes that MFSL will maintain a ‘Stable’ outlook over the near to medium term owing to its established presence in the key operating segment (i.e. MSME, MFI) and healthy capitalization buffers. The outlook may be revised to ‘Positive’ in case of significant and sustainable growth in its AUM while maintaining profitability, asset quality and capitalization indicators. Conversely, the outlook may be revised to ‘Negative’ in case of significantly higher than expected asset quality pressures or profitability margins.
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| Other Factors affecting Rating |
| None |
| Key Financials (Consolidated) | ||||||||||||||||||||||||||||||||||||||||
*Total income equals Net Interest Income plus other income
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| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any Other Information |
| None |
| Applicable Criteria |
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• Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Commercial Paper: https://www.acuite.in/view-rating-criteria-54.htm |
| Note on Complexity Levels of the Rated Instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||||||||
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