Mumbai: The initial public offering (IPO) of MAS Financial Services Ltd will open for subscription on Friday. The Gujarat-based firm plans to raise Rs2,275 crore through the share sale with a price band of Rs456-459 per share.

Analysts said the valuations of the non-banking finance company (NBFC) which lends to middle and lower income segments are reasonable. “At the upper band of the issue, the company trades is offered at 3.6 times post issue book value of Rs130 which is fairly priced in our view compared to peers," said Prabhudas Lilladher Pvt. Ltd.

According to the brokerage firm, MAS Financial Services has been able to display best in class return ratios with return on assets (ROAs) of 3% and return on equity (ROE) of over 25% consistently in the last few years and is much better than immediate peers which operate in the same segment. “It is likely to continue to deliver on profitability and maintain superior return ratios," it said.

Prabhudas Lilladher added that MAS Financial Services has been able to maintain very strong asset quality with gross non-performing assets (GNPAs) and net non-performing assets (NNPAs) at 1.2% and 1%, respectively, as of June 2017. However, it pointed out that concern remains on the lower provision coverage ratio (PCR) of 15% which can be a risk to profitability if loans go bad especially from wholesale book even though credit cost also remains much lower at 1% of assets under management (AUM).

Angel Broking Pvt. Ltd feels that the high valuations are underpinned by high growth potential and profitability. It said that peers of MAS Financial Services, Capital First and Shriram City Union Finance are trading at three times FY2017 book, but both companies have moderate ROE of 11%. “With strong internal capital generation ability, present high capital adequacy ratio (CAR) and IPO, proceeds would not require MAS Financial Services to dilute equity for high growth in near future," said Jaikishan J. Parmar, analysts at Angel Broking in a report on 5 October.

He added that focused approach towards asset financing, ability to find out gaps and the under-served sections of the micro enterprise SME and vehicle finance has helped the company to achieve a strong 33.4% compounded annual growth rate (CAGR) in AUM over FY2013-17.

The company’s AUM has grown at a healthy 33.4% CAGR over FY2013-17 with strong asset quality.

As of Q4FY17 and Q1FY18, the company’s AUM was Rs3,332.6 crore and Rs3,451.7 crore, respectively. AUM increased at a CAGR of 33.4% from Rs1,053.2 crore as of FY13 to Rs3,332.6 crore as of FY17. As of 30 June, it had more than 500,000 active loan accounts across more than 3,165 customer locations.

IIFL Wealth Management, however, feels that as the company’s micro-enterprise loans are given to customers who primarily include small and medium sized manufacturers, dealers and service providers are mostly unsecured in nature and hence it may not be able to recover these loans through standard recovery proceedings.

Proceeds from the fresh issue will be used towards augmenting its capital base to meet future capital requirements.

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