PEs keen on picking up shares in auto finance companies - Economic Times

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Indian private equity firms Multiples and ChrysCapital have emerged as the frontrunners for a stake of about 13% in Hero FinCorp, the consumer finance arm of Hero MotoCorp, said two people with knowledge of the matter.

Both have submitted bids at about $90 million (Rs600 crore), valuing Hero FinCorp at around Rs 4,000 crore, four times its book value.

After Hero MotoCorp sought applications in January, five firms including Creador Capital, Baring Asia, Partners Group and the two mentioned above submitted initial bids in July. Private equity firms have been keen on picking up shares in auto finance companies in anticipation of higher vehicle sales as the economy improves. A bountiful monsoon and salary and pension increases should also help provide a bump in sales.

"All the five bidders were willing to pay around $90 million, and the bids were more or less around that amount. The decision to shortlist the two firms (Multiples and ChrysCapital) was based on Hero's comfort with the bidders," said one of the two people. They expect the deal to be finalised in the next two months or so.

There was no response to emails sent to Hero MotoCorp, ChrysCapital and Renuka Ramnath, the chief executive officer of Multiples.

ET had reported in January that Hero FinCorp was looking to dilute a 10% stake and had appointed Credit Suisse as its investment banker. Hero FinCorp Chairman Abhimanyu Munjal told ET in January that the company planned to expand aggressively in the next few years and toward this end was evaluating different sources of funding, including large investment banks.

"We have seen exponential growth over the last three years and we want to continue to grow over 100% in the next three years to over $3 billion," Munjal had told ET. "Our vision is to be among the top three NBFCs (non-banking finance companies) in the country . Providing solutions to the under-served population of the country will remain a focus for us as we look at expanding our presence."

Hero FinCorp had a loan book of around Rs 6,000 crore as of March 31, 2016, and posted net profit of Rs 81 crore and total income of Rs 770 crore in FY16, according to a Crisil research report in June.

Adequately Capitalised

"HFCL is adequately capitalised," the report said, pointing to its net worth of . 1,030 crore and overall capital adequaRs cy ratio of 17.4% of risk-weighted assets as of March 31. The company, which had a net worth of Rs 550 crore a year earlier, raised Rs 407 crore in the second quarter of FY16 through a rights issue, it said."The gearing (or, equity to debt ratio) was 5.1times on March 31(4.1 times as on March 31, 2015); however, this is expected to increase over the medium term as the book scales up."

PE firms have been focussing on NBFCs that specialise in auto loans. Everstone, that specialise in auto loans. Everstone, for instance, invested Rs . 200 crore in 2013 in Hinduja Leyland Finance, which is now looking to tap the primary market to raise around Rs 700 crore.

"Financial services have been a focus sector for private equity investors in recent times as retail loans have shown lower delinquency ," said Sanjeev Krishan, deals advisory partner at PwC. "This combined with the anticipated growth in the economy , business with healthy retail books and good franchise to support would continue to be attractive."

Experts said the vehicle finance units of some of the biggest Indian automobile companies have seen healthy growth with the economy showing signs of recovery. These include the units of Mahindra & Mahindra and Tata Motors. Growth in the sector, along with easier exit options for investors, has seen increased interest on the part of PE firms in vehicle finance. "NBFCs have given good returns to private equity investors and performed well even after the global financial crisis," said an analyst at a business advisory firm.

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