MAS Financial Services Growth Drivers: CMD Kamlesh Gandhi Discusses
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00:00 Good afternoon. Welcome to this very special show where we're going to take you through
00:14 the earnings of Mass Financial Services Q4 FY24 numbers, of course, a strong steady set
00:23 coming in from Mass Financial. And to break that down, we have with us Mr. Kamlesh Gandhi,
00:28 who is the CMD at Mass Financial, Chairman Managing Director. Welcome to NDTV Profits,
00:34 sir. It's good connecting again. Nice to connect again. And as you rightly
00:41 remarked, it was a good quarter for us in terms of growth and in terms of consistent
00:46 growth. So this was our 116th quarter of consistent growth. And it also witnessed a very important
00:52 milestone of we being upgraded to AA- from our current rating of A+. So all in all, a
01:00 satisfying year to having crossed 10,000 crores, mark having crossed a profitability of 250
01:05 crores plus on a concentrated basis and being upgraded.
01:09 Absolutely, sir. So take us through the journey, maybe a year from now, as well as maybe three
01:17 to four years from now, will this consistency continue just in terms of growth? Any tailwind
01:23 you see and what's the strategy? Is it to go deeper?
01:26 See, if you see, we are a 28 years old company. And as I shared with you earlier, this is
01:33 116th quarter of consistent growth. And during this time, we have seen a lot of cycles. So
01:39 as a company, we believe in prioritizing asset quality, profitability or just growth. So
01:45 we believe in the team of not only just determining growth, but also discovering growth from time
01:49 to time. So as I do now, and as if I can preempt now, I think we are well poised for a very
01:57 steady 20 to 25% growth for at least coming three to five years and beyond. And that is
02:02 what we have demonstrated over all these years.
02:06 Understood, sir. And so what component of your book is unsecured? Is it just the personal
02:11 loans? Because there are some pockets of loans which have grown very, very sharply. One is
02:17 your CV loans. Second is your salaried personal loans. And your SME loans is fine, pretty
02:23 much at 25%, which is largely where you've grown at.
02:28 So if I take you through the asset breakup, we are predominantly MSME financing company,
02:33 whereby close to 80% of our portfolio come from MSME. But having said that, it is a conscious
02:39 effort on the part of the company to diversify its asset base. So in an endeavor in that
02:44 direction, we are growing our two-wheeler portfolio, CV portfolio, and also to a limited
02:49 extent our salaried personal loans. The percentage what it looks like higher is on the very lower
02:55 base. But on a substantial base, once we achieve, it will be in lines of worth about 20 to 25%
03:03 growth. In terms of secured and unsecured, I think majority of the part is secured either
03:07 through current assets hypothecation or through properties or through vehicles we finance.
03:13 And of course, salaried personal loan is an unsecured loan and certain portion of our
03:17 micro enterprise loan stands at unsecured. Sure. So what would that component be as part
03:24 of the total loan mix? I think we are at around 65 to 70% in secured
03:29 and around 35 to 30 in unsecured. Sure. And with regard to these two, so you're
03:36 a seasoned player when it comes to MSME and the like, but your larger growth kicker is
03:42 coming from your new businesses. So any concerns with regard to asset quality there? Is it
03:48 to existing customers or are you finding new customers there? What's the kind of comfort
03:53 level on asset quality do you have over there? So just to share with you, we have been one
03:58 of the oldest two-wheeler and commercial vehicle financer in the country on that products too.
04:04 It is only the renewed focus now with the market giving a positive risk adjusted return
04:11 in this product and hence more allocation of capital and that towards those product.
04:15 So number one, we are not new to this product. And number two, as I told you that we will
04:20 be very cautious on how we get the risk adjusted return, how we maintain the asset quality
04:25 before we really decide our growth targets. Understood. So around 20 odd percent of your
04:34 loan book of 10,000 odd crore is off book. So how does the revenue model work here for
04:40 you? Is there something unique that plays out? No, so when we talk about off book, it
04:47 is a bilateral assignment done with the banks and we service the portfolio throughout the
04:51 tenure and we get the excess interest spread and just like that we get the spread while
04:57 taking any conventional liability. So it has nothing to do with a different revenue model
05:03 here when we do off book. Understood, sir. And sir, with regard to OPEX and growth plans,
05:10 OPEX continues to remain elevated. You currently have a presence in, you have almost 200 branches
05:19 in terms of presence and you have over 180 NBFC partners. What is the growth plan from
05:26 here both in terms of partners, in terms of geography?
05:29 I think in terms of geography, we are already present in almost 12 states, including some
05:35 of the union territories. So in terms of our direct distribution, we would like to concentrate
05:39 our base in the existing area of operation by penetrating deep once we have the demographic
05:44 understanding and the right set of human resources over there. In terms of our NBFC partners,
05:50 I think there are many more smaller NBFCs coming with a wealth of demographic understanding.
05:56 So I think we would be in a position to add on marginally over there. We are already working
06:01 with 180 of them. So I do not see a major jump in our NBFC partners, but whereas our
06:06 penetration in our direct distribution will increase. On a standalone basis, we have around
06:12 189 branches. We will be adding another 25 to 30 branches this year. On a consolidated
06:17 basis, we will be at around 250 branches plus. Sure. That is by FY25, 250 branches plus?
06:26 On a consolidated basis, yes. Understood. So that would include the housing
06:30 finance, console basis, sorry, maybe, yeah, okay. Understood. And how many branches does
06:35 housing finance have as of now? Currently, housing finance has around 60 branches.
06:41 This is the standalone 189. So we will be adding, so we will be anywhere between 250
06:47 to 300 branches after the addition. Understood. Understood. Understood. Fine.
06:52 Okay. I will come to housing finance because that is also very interesting, but on the
06:57 OPEX side itself, where should that put your OPEX ratios? Because this year we saw a spike
07:03 with regard to your OPEX ratio. 2.24% OPEX to assets, not too bad, just in terms of,
07:11 you know, operational and the kind of growth that you are clocking. But would you expect
07:17 some efficiencies to start to kick in? How should one look at some of these numbers?
07:25 So as we consolidate on our direct distribution, the OPEX will increase. But the right way
07:29 to look at it, the ROI tree is that what are the ROAs left after the yields, after the
07:35 credit cost and after the interest we pay. So we generate names of around 7% and if the
07:41 OPEX increases, our name will also increase. So it should suffice to say that irrespective
07:47 of the OPEX cost, we will be in a position to maintain our ROAs anywhere between 2.75
07:52 to 3% and hence after the name of around 7% and that the names and the OPEX cost will
08:00 correspondingly increase or decrease depending upon the distribution model. But as I see
08:05 right now, our OPEX should settle anywhere between 2.25 to 2.75% going forward with a
08:11 constant ROI of around 2.75 to 3%. Sure, understood. Yeah, so that makes a lot
08:20 of sense. Let me switch over with regard to mass housing finance, any rural housing finance,
08:28 which is your housing finance subsidiary, any possibility of value unlocking over there
08:36 in terms of one funding to a separate listing? Are there any plans on the table?
08:42 Not immediately, but definitely in the medium term to long term, once we get scale. If you
08:48 see our housing finance companies are at 6600 crores right now and presuming that we are
08:53 in a position to provide around 30-35% or first target is to cross 1000 crores and then
08:58 double it every 2 and a half to 3 years. So, I think value unlocking can happen anywhere
09:03 within next 3 to 5 years. Understood, got it. And with regard to your
09:10 capital raise, you are well capitalized 24% plus ROI, sorry, capital adequacy. Now, when
09:19 it comes to just your fund raise of 2000 crore of debt, where you've taken an enabling provision
09:28 for that, how long do you think that this kind of 24% kind of capital adequacy, how
09:35 long will this capital last you? So, when will you actually have to dilute in your view
09:39 as of now, given the 20 to 25% growth that you are expecting?
09:45 So, if you see historically, we have demonstrated a non-dilutive growth. Even at this stage
09:50 as promoters, we hold around 73.7% of the company. We went to ICO in 2017 and post 2017
09:58 to 2024 from 3000 crores to almost 10,700 crores on a consolidated basis, we have grown
10:05 through internal accruals. So, we have a self-capital propelling model, whereby we generate around
10:10 15% of ROAs and we did this to the tune of 20 to 25% and around 3 to 4% of tie to capital.
10:18 To grow at 20 to 25%, we don't actually need an external capital. But to strengthen the
10:24 capital base, we already have an enabling resolution of 700 crores, which can be raised
10:28 in branches over some time, say over a year or so.
10:33 Understood. So, per se, no real expectation of an equity capital raise, is that how one
10:40 should conclude?
10:41 So, we are not in a hurry or requirement to raise the capital, depending upon the valuations
10:48 and the right set of investor during a year or so, we might raise some branch of capital
10:53 from the enabling resolution what we already have in place.
10:57 Understood. Okay. Very interesting. Again, as always, my conversation with you and thank
11:04 you so much for this quick interaction and for giving us an understanding of Mass Financial.
11:11 Thank you so much. Thank you.
11:12 Well, that was Mr. Kamlesh Gandhi, who is the Chairman Managing Director at Mass Financial
11:17 Services, stock up and away in trade after a solid set of numbers. You know, good understanding
11:24 that he has given us with regard to the numbers as well as what one can expect going forward.
11:28 Thank you.