MAS Financial Services IPO kicks off today: Should you subscribe?

MAS Financial Services (MAS), a Gujarat-based non-banking financial services company (NBFC), kicked off its Rs 460 crore initial public offer (IPO) on Friday with most brokerages suggesting 'subscribe' to the issue. 

The two-decade-old NBFC's public issue comprises a fresh issue of shares worth up to Rs 233 crore and an offer for sale of up to Rs 227 crore by existing shareholders. It has fixed a price band of Rs 456-459 per share for its initial share sale offering.

On Thursday, the company allotted over 2.961 million equity shares to 15 anchor investors at Rs 459 apiece (upper end of the price band), raising about Rs 136 crore. 

Here's what leading brokerages and research houses suggest:

Prabhudas Lilladher

MAS Financial Services focuses on lending to middle and low-income customer segments, especially which are lesser banked. The company had Rs 3,450 crore of consolidated Asset Under Management (AUM) as of June quarter of FY18. It operates primarily in MSE (58% of AUM), SME (24% of AUM), Two Wheeler (9% of AUM), Commercial Vehicles (3.5% of AUM) and Housing (5.2% of AUM) segments, and has its operations based in six states & Delhi NCR.

At the upper band of Rs 459, MAS trades at 3.6x post issue book value (BV) of Rs 130 which is fairly priced compared to peers. We recommend subscribing to this issue for long-term investment horizon for superior return ratios and strong lending growth.

IIFL Investment Managers - Subscribe

A diversified product profile coupled with a multi-faceted origination strategy keeps the company well-poised for achieving robust growth in the coming years. The key to this growth would be the scale-up of institutional lending business (to MFIs, HFCs and other NBFCs) both by making inroads into existing relationships as well as adding new partners. The company also plans to organically expand its network in a contiguous fashion. 

MAS represents a relatively more stable profitability franchise compared to other NBFCs of similar size. At the upper end of the price band, the company is being valued at 3.7x price/book value (P/BV) on a post-money basis. This valuation should be palatable for long-term investors considering the impressive RoE profile of the business. That there’s no stake divestment by promoters in this issue also provides comfort. We recommend 'subscribe'.

Centrum Wealth Research 

At the higher end of the price band of Rs 459, the issue is priced at 4.7x its FY17 adjusted book value of Rs 97/share on post-IPO money; in line with average P/BV of 4.8x for its peers. However, the high return ratios of 3.3% RoA and 20.6% RoE are comparable to that of Bajaj Finance (3.3% RoA and 21.6% RoE) which is trading at 10.6x its P/BV on FY17 basis. Considering the high growth (23% AUM growth, 26% NII and 35% PAT) and healthy financials, MAS could attract good market interest (similar to the past NBFC IPOs). Further, if the company maintains its growth trajectory, the stock would continue to perform even post listing. Hence, we recommend 'subscribe' to the issue.

Angel Broking 

Close peers, Capital First and Shriram City Union Finance are trading at nearly 3x FY17 book. However, both the companies report moderate Return on equity (ROE) of 11%. At the upper end of the price band, MAS is valued at 6.85x of FY2017 book value (Pre-IPO) and on post-dilution basis at 4.1x of Book value. Although valuations are on the higher side, looking at the strong and sustainable growth and ROE prospects of the company, we recommend a 'subscribe' to the issue.