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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1500.00 | ACUITE AA- | Stable | Assigned | - |
| Bank Loan Ratings | 4500.00 | ACUITE AA- | Stable | Reaffirmed | - |
| Commercial Paper (CP) | 300.00 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 6300.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has assigned the long-term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) on the Rs. 1500.00 Cr. Bank Facilities of MAS Financial Services Limited (MFSL). The outlook is 'Stable'.
Acuité has reaffirmed the long-term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) on the Rs. 4500.00 Cr. Bank Facilities of MAS Financial Services Limited (MFSL). The outlook is 'Stable'. Acuité has reaffirmed the 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). 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 company’s capital adequacy remained strong at 25.28 percent with Tier I Capital of 22.49 percent as on June 30, 2022. Acuité takes cognizance of the recovering AUM which stood at Rs. 6567 Cr. as on March 31, 2022 as against Rs.5657 Cr. as on March 31, 2021. As on June 30, 2022, the AUM stood at Rs. 7027 Cr. The ratings further factor in the group’s strong resource raising ability, healthy asset quality metrics, comfortable capital and liquidity buffers. The group has funding relationships with Banks and Financial Institutions with a lender base of ~28 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 scale of operations and high portfolio concentration in three states comprising ~76 percent of the AUM as on March 31, 2022. 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 March 2022) and under its Retail asset Channel (RAC), it has exposure to segments such as NBFCs and MFIs (~48 percent as on March 31, 2022). While the company’s asset quality continues to remain healthy, marginal stress was noticed with GNPA and NNPA levels at 2.00 percent and 1.15 percent respectively as on March 31, 2022 as compared to 1.52 percent and 0.93 percent as on March 31, 2021. As on June 30, 2022, the GNPA and NNPA stood at 2.06 percent and 1.18 percent respectively. Going forward, the ability of the Group to profitably scale-up its operations while maintaining healthy asset quality will be key monitorable. |
| About MSFL’s subsidiary - MRHMFL |
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MAS Rural Housing Mortgage Finance Limited (MRHMFL), incorporated in 2008, is a nondeposit taking Housing Finance Company registered with National Housing Board. MFSL held 59.67 percent stake as on March 31, 2022 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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| About MFSL |
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Incorporated in 1995, Gujarat based MFSL, is the flagship company of MAS group (i.e. MAS Financial Services Limited (MFSL) and MAS Rural Housing and Mortgage Finance Limited - (MRHML)). 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 six states, namely, Rajasthan, Gujarat, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh and one Union Territory, National Capital Territory of Delhi, through a network of 125 branches as on March 31, 2022. MFSL’s equity shares were listed on BSE and NSE in October 2017, it currently has a market capitalization of Rs. 3142.79 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 73.64 percent of the equity shareholding in MFSL.
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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 and MRHMFL (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. Presently, MAS group’s operations are spread over seven states and the group operates through a network of 125 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 recovered to Rs. 6567 Cr. as on March 31, 2022 as against Rs.5657 Cr. as on March 31, 2021. (Rs. 6253 Cr. as on March 31, 2020). As on June 30, 2022, the AUM stood at Rs. 7027 Cr. 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 The entity's Assets under Management (AUM) has grown from Rs. 1391 Cr. as on March 31, 2014 to Rs.6567 Cr. as on March 31, 2022 (on balance sheet exposure Rs. 5339 Cr and Off balance sheet exposure of Rs. 1229 Cr.). It has comfortable capitalization level with overall Capital Adequacy Ratio of 26.35 percent as on March 31, 2022 (26.85 percent as on March 31, 2021), mainly by way of Tier I capital of 23.08 percent (24.81 percent as on March 31, 2021). MAS group’s net worth stood at Rs. 1317.51 Cr. as on March 31, 2022 as against Rs. 1179.87 Cr. as on March 31, 2021 (Rs. 987.08 Cr. as on March 31, 2020). 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 ~28 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 March 31, 2022, the funding mix comprised direct assignment funding of 21 percent (including co-lending), cash credit of 28 percent, term loan of 40 percent, non-convertible debentures of 7 percent and subordinated debt of 3 percent. Additionally, the company maintains healthy liquidity in the form of adequate cash and bank balance of Rs 870.66 Cr. and unutilized lines of Rs 1678.45 Cr. as on March 31, 2022 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. Comfortable Financial Performance At Consolidated level, Profit after Tax (PAT) stood at Rs 161.15 Cr. as on March 31, 2022 as against Rs 145.52 Cr. as on March 31, 2021 (Rs 168.09 Cr. as on March 31, 2020). Despite the growth in its loan portfolio for FY2022, the profits have marginally improved on account of lower credit costs (Rs. 37.83 Cr. for FY2022 as compared to Rs 59.54 Cr. for FY2021) pursuant to stabilization in business environment. This was further aided with marginal improvement in opex which improved to 1.47 percent as on March 31, 2022 as compared to 1.58 as on March 31, 2021. The profitability continues to be healthy as reflected in the Return on Average Assets (ROAA) of 2.75 percent and Net Interest Margin (NIM) of 5.12 percent as on March 31, 2022. Acuité expects the Group to sustain improvement in earning’s profile in the current operating environment. |
| Weakness |
| Significant exposure to NBFC loans; Asset quality challenges likely to remain in near to medium term
MAS group has high exposure to segments such as NBFCs and MFIs (also referred to as RAC) and MSME’s. The group’s loans to NBFCs and MFIs as a proportion to the overall AUM was ~48 percent as on March 31, 2022. MAS group has a policy of lending to NBFCs and MFIs for on 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. MAS Group also engages in partnership agreements with these NBFCs, wherein these NBFC also do the sourcing, monitoring and servicing of these loans for MAS. The efficacy of these business models has been demonstrated over the past few years. 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 NBFC/MFI segment has witnessed a turbulent environment in the past which has impacted their financial flexibility and credit profiles. While these NBFCs were facing liability side challenges over the past few years, the pandemic situation in the country has impacted the asset side as well. The occurrence of events such as deterioration in the asset quality of the NBFC has impacted its ability to meet its commitments to lenders such as MAS. MFSL saw some stress in asset quality in the retail segment including the MSME segment on account of impact on the credit profiles of these borrowers during the pandemic. The situation of this self-employed segment can pose a challenge in case of any uncertainty in the operating environment going forward. The performance of existing pools in the current operating environment and the regulatory framework for retail assets will be crucial in this regard. Acuité believes that the group’s ability to contain asset quality pressures while maintaining its profitability parameters is 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 four independent directors out of total six directors which includes two female directors.
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| Rating Sensitivity |
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| Material Covenants |
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MFSL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, debt to equity ratio among others.
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| Liquidity Position |
| Adequate |
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MFSL has adequately matched asset-liability profile as on March 31, 2022 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 by way of unencumbered cash and bank balances of Rs. 870.66 Cr as on March 31, 2022.
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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 |
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Not applicable
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| Key Financials (Consolidated) | ||||||||||||||||||||||||||||||||||||||||
*Total income equals to Net Interest Income plus other income.
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| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None |
| Applicable Criteria |
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| Note on Complexity Levels of the Rated Instrument |
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