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MAS Financial Services files draft papers for $85 mn IPO

27 March, 2017

Sarva Capital-backed MAS Financial Services Ltd, an Ahmedabad-based non-banking financial company (NBFC) formerly known as M/S Marketing & Allied Services, on Friday filed a draft red herring prospectus with capital markets regulator Securities and Exchange Board of India for an initial public offering (IPO).

VCCircle was first to report in September 2016 that MAS was finalising plans to take the IPO route, following in the footsteps of several banking, financial services and insurance companies that have either gone public or firmed up IPO plans in the last one year.

PNB Housing Finance Ltd, RBL Bank Ltd, ICICI Prudential Life and small finance banks Ujjivan Financial Services Ltd and Equitas Holdings Ltd have successfully floated IPOs over the past year. Other BFSI companies that are looking to go public include SBI Life Insurance, state-owned Housing and Urban Development Corporation Ltd and AU Financiers (India) Ltd.

The public issue will comprise a fresh issue of shares worth Rs 307.4 crore ($47.2 million) besides an offer for sale of Rs 242.6 crore by venture capital backer Sarva as well as international development finance institutions DEG and FMO.

DEG, or Deutsche Investitions-und Entwicklungsgesellschaft MBH, is the private equity arm of Germany’s KfW Bankengruppe specialising in direct and fund-of-funds investments.

FMO, or Nederlandse Financierings–Maatschappij voor Ontwikkelingslanden NV, is a Dutch development bank headquartered in the Hague.

The company, which has been in business for close to two decades and has presence in six states, will look to the deploy the capital raised over FY18 and FY19. The IPO will also help it augment its capital base to meet requirements under capital adequacy norms. Under the Reserve Bank of India’s (RBI) capital adequacy regulations, NBFCs must have a capital-to-risk assets ratio (CRAR) of 15%.

As on six months ended September 2016, MAS had a CRAR of 20.08% on a standalone basis, of which Tier I capital was 13.17%, the company said in its DRHP.

Capital adequacy is the minimum amount of capital a banking firm or an NBFC must hold as a percentage of the risk-weighted assets on its portfolio and of the risk adjusted value of off-balance sheet items, as applicable.

Snapshot of the IPO
Issue size: MAS Financial is looking to raise Rs 550 crore ($84.5 million) through a combination of sale of fresh equity and an offer for sale by existing VC investor Sarva Capital and strategic investors.

The IPO will result in an approximate stake dilution of 20-25%, which would value the company at Rs 2,200-2,750 crore ($338-422.42 million). Germany’s DEG will sell shares worth Rs 118.6 crore. FMO will sell shares worth Rs 86 crore while Sarva (earlier known as Lok Capital II LLC) will sell shares worth 38 crore.

Use of proceeds: Ahmedabad-based MAS will use the proceeds to augment its capital base to meet RBI’s capital adequacy norms.

Bankers: Motilal Oswal Investment Advisors Pvt. Ltd is the sole financial adviser to MAS Financial for the IPO.

Lawyers: The company and merchant banker have appointed law firm Luthra & Luthra as their legal counsel while the underwriters to the issue have appointed Squire Patton Boggs Singapore LLP as their international legal counsel.

FMO and Sarva Capital have appointed AZB & Partners as the legal counsel while Trilegal will represent DEG.

Company
M/S Marketing and Allied Services, a three-decade-old firm catering to the lower- and middle-income groups, was engaged in financing of consumer durables initially. It was incorporated as MAS Financial Services, an NBFC, in 1995.

The company, led by Kamlesh Gandhi and Mukesh Gandhi, had assets under management (AUM) of Rs 2,927.81 crore as on September 2016. It expects to achieve Rs 3,200 crore in AUM by the end of this month.

MAS provides corporate loans to NBFC-MFIs (micro finance institutions) and other NBFCs engaged in retail finance, small-ticket business loans, small commercial vehicle loans, two-wheeler loans and machinery finance. Most of its branches are located in Gujarat, Rajasthan and Maharashtra. It also has presence in Tamil Nadu, Madhya Pradesh, Karnataka and New Delhi, primarily to tap the commercial vehicle market, according to a February 2015 ICRA credit report.

In 2012, the company raised an undisclosed amount from DEG.

In the same year, it raised $12 million from IFC through compulsorily convertible preference shares (CCPS).

In 2008, it had raised Rs 40 crore from ICICI Venture Fund through a mezzanine funding deal in the form of redeemable preference shares.

Financials
MAS Financial reported a consolidated net profit of Rs 34.84 crore for the six months ended September 2016 on a consolidated revenue (operation) of Rs 180.82 crore.

For 2015-16, MAS reported a revenue of Rs 303.45 crore compared with Rs 237.43 crore in the corresponding period last year. Its net profit stood at Rs 51.45 crore at the end of fiscal 2016 compared with Rs 40.80 crore in the previous year.

Its top line has grown at a compounded rate of 21.5% per year from 2011-12 to 2015-16, as per the prospectus. Profits have grown at a CAGR of 20.61% over the same period.

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MAS Financial Services files draft papers for $85 mn IPO

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