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Review By Dilip Davda on September 28, 2017

Mas Financial Services Ltd. (MFSL) is a Gujarat-headquartered NBFC with more than two decades of business operations and as of June 30, 2017, it operated across six States and the NCT of Delhi. Its business and financing products are primarily focused on middle and low income customer segments, and include five principal categories: (i) micro-enterprise loans; (ii) SME loans; (iii) two-wheeler loans; (iv) Commercial Vehicle loans (which include new and used commercial vehicle loans, used car loans and tractor loans); and (v) housing loans. MFSL’s shareholders include development finance institutions including FMO and DEG and private equity investors including Sarva Capital.

As of March 31, 2017 and June 30, 2017, company’s AUM was Rs. 3332.57 cr. and Rs. 3451.74 cr. respectively. Company’s AUM increased at a CAGR of 33.37% from Rs. 1053.19 cr. as of March 31, 2013 to Rs. 3332.57 cr. as of March 31, 2017. As of June 30, 2017 it had more than 500,000 active loan accounts, across more than 3165 Customer Locations in six States and the NCT of Delhi, served through our 121 branches. As of 30.06.17 it has assigned 34.1% AIMs to banks/FIs. Company’s average cost of borrowing is 9.05% and is having NIM of around 7%. Company is pursuing and maintaining stable growth and quality of portfolio by expanding product offerings to anchor its belief that growth with quality will enhance the stakeholder’s value. Company meets its funding requirements from banks like HDFC Bank, Axis Bank, Union Bank, SIDBI, Union Bank, Central Bank of India etc.

To part finance augmenting its capital base to meet future capital requirements, MFSL is coming out with a maiden IPO of Rs. 460.04 crore via book building route with a price band of Rs.456 - Rs. 459. Issue consists of fresh equity issue (approx 5076252 shares) worth Rs. 233 crore and offer for sale for Rs. 227.04 crore (approx 4946405 shares) . Issue opens on 06.10.17 and will close on 10.10.17. Minimum application is to be made for 32 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue is solely lead managed by Motilal Oswal Investment Advisors Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. It has reserved xx shares for eligible employees and is offering a discount of Rs.45 per share. Having raised initial equity at par from incorporation till March 2008, it raised further equity in the price range of Rs. 124.93 to Rs. 1200 per share between July 2012 and September 2017. It has also issued bonus shares in the ratio of 1 for 2 in December 2006, 1 for 2 in August 2007, 1 for 19 in December 2011, 3 for 5 in January 2014, 3 for 2 in November 2016. DEG held 4,998 CCDs that have been converted to 2,470,175 Equity Shares in the Board meeting held on September 21, 2017. FMO held 21,735,545 Series A CCPS that have been converted into 1,739,865 Equity Shares and Sarva Capital held 21,735,545 Series B CCPS that have been converted into 1,280,723 Equity Shares and 400 Series C CCPS held by nine shareholders has been converted into 87,716 Equity Shares, all in the Board meeting held on September 12, 2017. Post issue, its current paid up equity capital of Rs. 49.57 crore will stand enhanced to Rs. 54.67 crore. Average cost of acquisition of equity shares by promoters ranges from Rs. 1.06 to Rs. 2.38.

On performance front, MFSL has (on a consolidated basis) posted revenue/net profits of Rs. 184.92 cr. / Rs. 33.09 cr. (FY14),Rs. 238.20 cr. / Rs. 40.80 cr. (FY15), Rs. 304.20 cr. / Rs. 51.45 cr. (FY16) and Rs. 364.70 cr. / Rs. 69.33 cr. (FY17). For Q1 of current fiscal it has reported net profit of Rs. 23.70 cr. on revenue of Rs.104.33 cr. For last five years it has posted CAGR of 26.3% and 25.9% in revenues and net profits respectively. For last three fiscals, it has posted an average EPS of Rs. 13.13 and average RoNW of
23.75% on paid up equity capital of Rs. 42.96 cr. (as on 31.03.17). Non-annualized EPS and RoNW are Rs. 4.75 and 6.03% on equity base of Rs. Rs. 43.99 cr. (as on 30.06.17). Company has converted its entire preference share into equity share as on 12.09.2017 and as on 21.09.17 it’s paid up equity capital stood at Rs. 49.57 crore. Issue is priced at a P/BV of 7.43. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 26 plus. Thus issue appears fully priced.

On BRLM’s front, merchant banker associated with this offer has handled 10 public issues in the past three years out of which 3 issues closed below the issue price on the listing date.

Conclusion: Moderate investment may be considered for long term in this fully priced issue.

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