Mumbai: Private equity firm Everstone Capital Advisors Pvt. Ltd has agreed to invest 200 crore for a 15% stake in Hinduja Leyland Finance Ltd, a commercial vehicle financier of the Hinduja group.

The Chennai-based non-banking financial company is jointly owned by Ashok Leyland Ltd and other entities of the Hinduja group and has assets under management of over 4,000 crore, Everstone said in a statement.

Ernst and Young and Spark Capital were advisers to the transaction.

The South-east Asia private equity investor will subscribe to compulsory convertible preferential shares in the Chennai-based non-banking finance company (NBFC) with a window of 90 days. The three-year-old company reported a profit of 92 crore, up 12% on a book size of 4,000 crore for the year ended 31 March.

The stake purchase comes at a time when consumer sentiment and industrial production is at an all-time low. Truck sales fell 25% in 2012-13 compared from the previous year.

Financial services companies act as an important catalyst in economic growth, said Dhanpal Jhaveri, partner and CEO of Everstone Capital Advisors. Hinduja Leyland helps entrepreneurs to borrow against income-generating assets, which play a crucial role in the supply chain, he said.

“We are looking at a five-year perspective and partnering with the Hinduja group which has a good team with a proven track record," he added.

The outlook for the sector is sluggish.

“We expect heavy and medium trucks volumes to remain weak in the near term as underlying demand indicators continue to post a subdued picture," said Subrata Ray, senior group vice- president, Icra Ltd, a rating agency.

Overall, a pickup in cargo volumes and improvement in freight rates will be the key indicators of improvement. So far, such a trend remains elusive, added Ray.

“We will use the funds for growth," said S. Nagarajan, managing director of Hinduja Leyland. The NBFC had said two years ago that it would raise about 200 crore by off-loading a 10% stake.

In January, Ashok Leyland said it would dilute its stake in non-core business and raise 500 crore to help trim debt and reduce pressure on working capital. In March, India’s second-largest maker truck and bus maker made a profit of 216 crore by selling its stake in IndusInd Bank Ltd.

“This is broadly in line with Ashok Leyland management stating that they would pare their stake in other group companies so as to bring down their debt levels and take care of their working capital," said Yaresh Kothari, an analyst at Angel Broking.

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