­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.

­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 eight states and the group operates through a network of 155 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. 8,867.94 Cr. as on June 30, 2023 as against Rs.8,505.89 Cr. as on March 31, 2023. (Rs. 6,565.15 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 25.31 percent as on June 30, 2023 (25.24 percent as on March 31, 2023), mainly by way of Tier I capital of 21.11 percent (20.79 percent as on March 31, 2023). The group’s capital structure is supported by networth of Rs. 1,544.67 crore as on March 31, 2023 which has improved from Rs. 1,372.53 crore as on March 31, 2022.
The entity's Assets under Management (AUM) has grown from Rs. 1,391 Cr. as on March 31, 2014 to Rs. 8,867.94 Cr. as on June 30, 2023 (on balance sheet exposure Rs. 7,015.18 Cr and Off balance sheet exposure of Rs. 1.852.76 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. 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 June 30, 2023, the funding mix comprised direct assignment funding of 24 percent (including co-lending), cash credit of 17 percent, term loan of 48 percent, non-convertible debentures of 8 percent and subordinated debt of 3 percent. Additionally, the company maintains healthy liquidity in the form of adequate cash and bank balance of Rs 775.96 Cr. and unutilized lines of Rs 1633.73 Cr. as on June 30, 2023 to meets its funding requirements.
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 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.

­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 ~35 percent as on June 30, 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.