MAS Financial Services sees MSME-led AUM growth with resilient asset quality and margins

Investment View and Valuation

Motilal Oswal Financial Services retains its Buy recommendation on MAS Financial Services, citing the lender’s ability to balance strong growth ambitions with a disciplined profitability and risk-management framework. The broker believes the company is positioned for sustainable medium-term growth through its core MSME franchise, increasing portfolio diversification, expansion of housing finance, investments in distribution and technology, disciplined underwriting and a strong capital position.

The target price is Rs 385, based on 1.8 times FY28E book value, compared with the current market price of Rs 317.

Q1 FY27 Financial Performance

MAS Financial Services reported a steady Q1 FY27 performance that was broadly in line with Motilal Oswal’s expectations. Profit after tax rose about 25 per cent year-on-year to Rs 105 crore, while net total income increased 30 per cent to Rs 310 crore. Operating expenses grew about 29 per cent to Rs 110 crore, and pre-provision operating profit rose 30 per cent to Rs 200 crore.

Credit costs were equivalent to an annualised 1.6 per cent, compared with 1.6 per cent in the preceding quarter and 1.4 per cent a year earlier.

MSME-Led AUM Growth and Portfolio Diversification

Standalone AUM stood at about Rs 15,100 crore, increasing about 21 per cent year-on-year and 6 per cent quarter-on-quarter. The MSME franchise contributed 80 per cent of year-on-year AUM growth, while approximately 67 per cent of standalone AUM originated through direct distribution.

Average ticket size was about Rs 82,000 for micro-enterprise loans and Rs 29 lakh for SME loans. The growth profile reflects continued strength in the core MSME franchise alongside increasing contribution from other lending segments.

Margins, Funding Costs and Profitability

Margins improved sequentially in Q1 FY27. Calculated loan yields rose about 30 basis points quarter-on-quarter to 15.3 per cent, while calculated cost of funds declined about 30 basis points to approximately 8.9 per cent. As a result, spreads expanded by about 60 basis points to 6.4 per cent, while calculated NIM remained stable at about 8.3 per cent.

Management expects spreads of about 7.0-7.5 per cent and NIM of about 8.0-8.5 per cent, supported by the asset mix. Near-term cost of borrowings is expected at about 9.2-9.3 per cent. Lower funding costs over the medium term could be aided by macro conditions and a credit-rating upgrade. Motilal Oswal forecasts NIM of about 8.0-8.1 per cent in FY27E and FY28E.

Asset Quality and Credit Costs

Standalone asset quality remained stable, with gross stage 3 assets at 2.6 per cent and net stage 3 assets at 1.7 per cent. MAS Financial Services retained a management overlay of about Rs 17.6 crore, equivalent to 0.14 per cent of on-book assets, as of June 2026.

Management expects credit costs of about 1.5-1.75 per cent, while Motilal Oswal models credit costs of 1.6 per cent for FY27E and 1.7 per cent for FY28E. The report notes that calibrated underwriting has helped MAS Financial Services navigate pressures in segments affected by higher energy costs and operating pressures.

The company is monitoring sectoral and geographical trends and adjusting lending practices proactively. Healthy borrower behaviour and collection efficiency support the broker’s view of portfolio resilience.

MAS Housing Finance Growth Strategy

MAS Housing reported AUM of about Rs 980 crore, up approximately 23 per cent year-on-year. Gross and net NPAs remained stable at 0.98 per cent and 0.68 per cent, respectively.

Management aspires to grow the housing-finance business at about 35 per cent CAGR through branch expansion, higher productivity and stronger distribution, particularly in southern markets. It expects housing-finance yields near 14 per cent and credit costs near 0.5 per cent.

Management guides direct distribution to about 70 per cent of AUM over the next 12-18 months and about 75 per cent over the following 8-12 quarters. Improving branch productivity, greater direct sourcing and technology-led efficiencies are expected to support scalability despite near-term conversion pressure.

Earnings Outlook and Key Risks

Motilal Oswal forecasts AUM and PAT CAGRs of 22 per cent and 20 per cent, respectively, over FY26-FY28. It estimates FY28E return on assets at about 3.1 per cent and return on equity at about 15 per cent.

The broker increased its FY27E EPS estimate by 2 per cent to reflect slightly higher AUM growth, while its FY28E PAT estimate was broadly unchanged.

Key factors that could weaken the investment thesis include:

• Macro-related stress in borrower segments.
• Higher-than-expected credit costs.
• Pressure on loan conversions.
• An inability to maintain stable margins.
• Failure to deliver the guided asset-quality performance.