Hero FinCorp in talks to raise Rs1,000 crore at $1 billion valuation
Mumbai: Hero FinCorp Ltd, the financial services arm of India’s largest two-wheeler maker Hero MotoCorp Ltd, is looking to raise up to Rs1,000 crore at a valuation of $1 billion at its next funding round, two people familiar with the matter said.
Credit Suisse, which was mandated to manage the fund-raising, has approached several large domestic and global private equity funds for a potential investment, the people cited above said on condition of anonymity.
The size of the stake sale has not been finalized and will depend on what the final valuation is in the forthcoming round, they said.
“The company expects to be valued around $1 billion,” said one of the two people cited above. In the last funding round, Hero FinCorp was valued at close to Rs4,000 crore, this person said. “Since then, the book size has grown significantly.”
In September, the non-banking finance company (NBFC) had raised Rs1,000 crore from three investors, including Rs570 crore from private equity fund firm ChrysCapital, Rs132 crore from Credit Suisse Group and Rs300 crore from Hero Group.
Hero MotoCorp has a 40.3% stake in Hero FinCorp, while the rest is owned by other entities of Hero Group. Collectively Hero group owns 79% stake in Hero Fincorp.
The NBFC has set a target of Rs35,000 crore loan book size by 2020, Mint reported in September. A part of the equity funding received last year has been utilized for capitalising Hero Housing Finance Ltd, the home finance arm of the group incorporated in July last year.
“A number of domestic and foreign private equity funds including TPG Capital have approached, but the talks are still in an early stage,” the first person added.
Hero FinCorp is led by Abhimanyu Munjal, the younger son of late Raman Munjal, elder brother of Pawan Munjal, chairman, managing director and CEO of Hero MotoCorp. According to recent corporate filings of the company, as of 31 December 2016, Hero FinCorp had a total credit portfolio of Rs9,192 crore, with two-wheeler loans comprising 29% of the book, followed by loan against property (LAP) at 21%, and bill discounting and inventory funding at 12% and other retail loans at 1%. During FY16, the company reported a profit of Rs81.5 crore on an asset base of Rs6,521 crore as compared with a profit of Rs33.1 crore on an asset base of Rs3,149 crore in FY15.
The Economic Times reported in July that Hero FinCorp was in talks to raise around Rs800 crore in a fresh funding round in a pre-packaged arrangement with ChrysCapital in which the valuation of a future funding round is decided in advance.
However, the people cited above said that the promoters of the company are keen to speak to all potential investors before going ahead with the next round which is expected to close in the next three months.
For investors, retail NBFCs have emerged as an attractive investment destination due to expanding profitability aided by falling interest rates, higher consumption and buoyant public markets, resulting in profitable exits.
In May, private equity firm Warburg Pincus LLC part-exited Capital First Ltd by selling a 25% stake. Last year, AION Capital Partners Ltd completed the purchase of the commercial lending and leasing business of GE Capital in India in a deal pegged at around $350 million. Spokespersons for Hero Fincorp, Credit Suisse and TPG Capital declined to comment.
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