Mumbai: Hinduja Leyland Finance Ltd (HLF), the commercial vehicles financing subsidiary of Ashok Leyland Ltd, is planning to raise 600-650 crore through an initial public offering (IPO), according to three people aware of the development.

HLF is jointly owned by Ashok Leyland and other entities of the Hinduja Group.

The firm has hired five banks to manage the IPO process, said the first person mentioned above. He requested anonymity as he is not authorized to speak to the media.

“They are looking to raise between 600-650 crore at a valuation of almost 4,000 crore," said the second person aware of the development, also requesting anonymity. The firm is planning to list on the stock markets by the second half of the next financial year, he added.

Private equity firm Everstone Group, which is an investor in the company, will make a partial exit through the IPO, he added.

In July 2013, Mint reported that Everstone had invested 200 crore for a 15% stake in Hinduja Leyland Finance Ltd. Everstone is an India and Southeast Asia focused private equity and real estate investment firm with assets under management of $3.3 billion.

The planned IPO will help the company strengthen its capital base and to expand its lending business, which has recently seen the addition of a new category of housing loans, said the third person mentioned above. He too requested anonymity.

“We are in discussions with investment bankers and exploring a potential raise through an IPO in the near future," said S. Nagarajan, managing director at Hinduja Leyland Finance, in an email response.

For a lending institution, capital is best used to leverage, build the book and create value for shareholders, he said, adding that in all likelihood, the firm will be looking to launch the IPO in the second half of the next financial year.

Everstone declined to comment for the story.

HLF was incorporated in 2008 as a non-deposit taking non-banking financial company with the Reserve Bank of India. It provides customized finance for utility vehicles, tractors, cars and two wheelers among other vehicles, focusing on the semi-urban and rural sector.

“Most of the business for HLF comes through Ashok Leyland, but it also does third party financing," said the third person quoted above.

As on 31 March, HLF had 6,550 crore in assets under management and a presence across 1,500 locations.

The company reported revenue of 814.3 crore in 2014-15 compared to 625.2 crore in the previous year, according to the company’s annual report. Net profit was at 111.5 crore compared with 81.1 crore in the previous year.

During the year, the company registered a jump of almost 95% in loan disbursements to 5,125 crore.

At the end of the last financial year, the firm’s capital adequacy ratio stood at 19.67% as against a statutory requirement of 15%. The firm’s net non-performing assets were at 2.9%.

According to Sudarshan Shreenivas, associate director at India Ratings and Research, while light commercial vehicles (LCV) sales continue to decline, the medium and heavy commercial vehicles (MHCV) category saw a turnaround in fiscal 2015, after two consecutive years of slowdown. Increased sales help financiers of such vehicles gain business as well.

“From August 2014, we have seen a steady recovery in the MHCV category. One of the key reasons for MHCV growth is replacement demand. Due to the economic slowdown, logistics operators had postponed replacement of their ageing fleet, which created a huge pent-up replacement demand," he said, adding that expectations of economic revival also helped boost demand for MHCVs.

Other factors such as lifting of the mining ban in certain states and increase in rail haulage charges by Indian Railways for private train operators also helped the demand for MHCVs, he said.

This improvement has reflected in HLF’s numbers.

In 2014-15, the firm witnessed strong growth in its MHCV lending category, which reported a 22% growth over the previous year. However, the light commercial vehicle loans category declined by 17% over the previous year.

“LCV demand is expected to pick up given the growth in e-commerce, especially now that people are also buying groceries online apart from other goods such as electronics and garments, which is creating a strong demand for last mile delivery," said Shreenivas.

However, categories such as tractors will see a decline this year due to deficient rainfall, he said.

The pipeline for IPOs has been picking up since late last year.

Data from Securities and Exchange Board of India shows that so far in 2015, 28 firms have filed their draft IPO papers with the regulator.

So far this year, 15 firms have raised about 6,348 crore through IPOs in 2015, according to data from Prime Database. This is already more than the entire sum raised in the last two years. In 2014, five firms raised 1,201 crore from the IPO markets, data from Prime Database shows. In 2013, three firms had raised 1,284 crore.

Close