Equirus Capital sees over 38% upside in this NBFC stock, initiates coverage with ‘long’ recommendation

Following three months of positive but muted returns, brokerage Equirus Capital has initiated coverage on NBFC stock MAS Financial Services with a ‘long’ recommendation and a target price of ₹401, indicating an upside potential of over 38 per cent.

“We believe MASFIN has the perfect elements (promoter pedigree, stellar asset quality track record, healthy capitalisation) of a top-quartile NBFC. Initiate coverage with LONG and a Sep’25 TP of ₹401 at 2.2x on Sep’26 BVPS,” it said.

The brokerage highlighted that MAS Financial Services (MASFIN), a first-generation MSME lender focused on low-to-middle-income customers, has shown strong growth with a 25.4 per cent loan growth CAGR and 21.4 per cent profit CAGR from FY21 to 1QFY25. MASFIN operates via a dual distribution model: tie-ups with NBFCs (retail asset channel) and self-distribution (direct retail channel), with plans to increase the direct retail share to 75-80 per cent. The company’s asset quality has remained solid, with an average credit cost of 1.6 per cent from FY20-FY24.

With a ₹78 lakh crore MSME financing gap, MASFIN is expected to achieve 25 per cent assets under management (AUM) and 24 per cent profit after tax (PAT) CAGR over FY24-FY27, with FY26 return on assets (RoA) at 3 per cent and return on equity (RoE) at 14 per cent, it projected.

Stock Price Trend

The stock has lost over 4 per cent in the last one year and has been completely flat on a year-to-date (YTD) basis. In the three months from August to October till date, the NBFC stock has been almost lacklustre as it rose just up 0.7 per cent in the current month, 0.6 per cent in September and 0.8 per cent in August.

With ₹289.60 as its last closing price, the stock is over 25 per cent away from its 52-week high of ₹387.70 hit on February 22, 2024. Meanwhile, it has advanced 9 per cent from its 52-week low of ₹265.50, recorded on February 27, 2024.

Investment Rationale

Shifting towards direct retail channel, geo-diversification: The brokerage said that MAS Financial Services is shifting its focus towards the direct retail channel, gradually reducing its reliance on the NBFC partner model, which it pioneered in India. While the retail asset channel will still operate, its share is expected to decline to 20-25 per cent in the next 2-3 years from 34 per cent in Q1FY25. MASFIN plans to expand its branch network from 193 to around 250 by FY26, targeting new geographies such as Karnataka, Tamil Nadu, Andhra Pradesh, and Delhi NCR.

Aims to double AUM every 2-3 years over the decade: The brokerage also highlighted MASFIN’s aim to double its AUM every 2-3 years, maintaining a robust 25 per cent CAGR. As of 1QFY25, MASFIN’s AUM stood at ₹103.8 billion, with a focus on low- and middle-income customers. Diversification efforts are also evident, with MSME lending comprising 80 per cent of AUM, alongside commercial vehicle loans (7.9 per cent), two-wheeler loans (6.4 per cent), and salaried personal loans (5.7 per cent).

Healthy asset quality trends: MASFIN has consistently maintained strong asset quality, with an average credit cost of 1.6 per cent over FY20-FY24. The brokerage noted that the company’s loan underwriting process, which includes physical verification and personal discussions, has helped maintain its asset quality. Additionally, MASFIN’s digital processes, including tech-driven loan origination and collection systems, are fully integrated.

Estimates

MASFIN delivered an average RoA of 3.1 per cent between FY20 and FY24, and it aims to maintain RoA above 2.8 per cent and RoE above 16 per cent going forward. The company believes that yield expansion of 3-4 per cent will sufficiently offset any operational cost or credit cost impacts stemming from changes in its business model and loan mix targets.

However, the brokerage cautioned that potential risks include asset quality issues in its self-originated loan book and weaker loan growth.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.