Hero FinCorp plans minority stake sale to raise $100 million

The firm has hired investment bank Credit Suisse to find buyers and discussions have started with a clutch of global PE funds

Hero FinCorp Ltd, the financial services arm of India’s largest two-wheeler maker Hero MotoCorp Ltd, plans to raise $100 million ( 650 crore) by selling a significant minority stake to private equity (PE) funds to fuel its expansion into new areas, two people familiar with the development said.

Hero FinCorp has hired global investment bank Credit Suisse to find buyers and discussions have started with a clutch of global PE funds, one of the two persons said.

Hero FinCorp, which took birth as Hero Honda FinLease Ltd in December 1991, recorded a turnover of 298.62 crore in 2014-15.

According to Hero MotoCorp’s FY15 annual report, Hero FinCorp has been expanding in a phased manner and its services will be available at over 730 dealerships across the country by the end of March 2016.

Hero FinCorp started off extending working capital loans and medium-term finance to component suppliers and dealers of parent firm Hero MotoCorp, then called Hero Honda Motors Ltd.

It began giving loans to customers in April 2013.

In 2014, it ventured into loans against property, loans for small and medium enterprises and commercial loans.

The firm claims to have over 350,000 active two-wheeler customer loans in June 2015.

Hero FinCorp had plans to finance 7.5% of the nine million two-wheelers the parent firm planned to sell in the local market over the next four years, according to a Mint report in April 2013.

Hero FinCorp expected to create a 5,000-crore loan book by 2016-17, with a target of 650,000 customers, the report said.

According to the company website, as one of India’s fastest growing non-banking finance companies (NBFCs), Hero FinCorp disburses more than 52 loans every hour.

On the corporate lending front, it has a relationship with over 200 high-growth companies, it said.

Abhimanyu Munjal, grandson of the late Brijmohan Lall Munjal, heads Hero FinCorp as its chief executive officer. Queries sent to him on 27 October remained unanswered. A spokesperson from Credit Suisse declined to comment.

In 2015, PE investments in India’s financial services sector grew 83% to $2.2 billion from $1.2 billion in 2014, according to data from VCCEdge, the financial research platform of VCCircle.com.

Out of this, NBFCs and other services (diversified financials) saw a growth of 200% at $1.9 billion (against $643 million in 2014) as compared with other sectors like banks ($50 million) and insurance ($250 million).

“The vehicle financing business, especially commercial vehicles, will see an uptick with the revival of the economy and the return of the investment cycle in India. PEs who have invested in the past have seen good return from their investments in well-managed banks, NBFCs and vehicle financiers," said Uday Bhansali, president-financial advisory, Deloitte in India.

In 2013, the Ajay Piramal-led Piramal Enterprises Ltd had acquired around 10% of Chennai-based commercial vehicle financier Shriram Transport Finance Co. Ltd for 1,652 crore ($307 million) from US private equity firm TPG Capital. TPG had bought a 49% stake in Shriram Transport in 2006 for $100 million.

In 2013, private equity firm Everstone Group acquired a 15% stake in Hinduja Leyland Finance Ltd (HLF), the commercial vehicles financing subsidiary of Ashok Leyland Ltd, for 200 crore.

In September, Mint reported on HLF’s plans to raise 600-650 crore through an initial public offering, allowing Everstone to make a partial exit.