Thirumeni Finance, an NBFC that operates under the name Varthana and lends to affordable private schools, is in the market to raise about $50 million, said one of the two people mentioned above on the condition of anonymity. Discussions are at preliminary stages, with a few private equity (PE) firms, the person added.
Another NBFC, Vistaar Financial Services, backed by PE firm WestBridge Capital, is also in talks to raise $50 million, according to the second person cited above.
Vistaar, which has C.B. Bhave, a former chairman of Securities and Exchange Board of India (Sebi) on its board, raised about $12.5 million in Series A and B round and Series C of $27.37 million from Westbridge Capital in 2014.
Varthana, set up by Brajesh Mishra and Steve Hardgrave in 2013, provides loans and additional support to low-cost private schools and educational institutions. The schools use the loans to add infrastructure such as new libraries or playgrounds, labs, smart classes and for teacher training programmes and school buses.
In April 2016, Varthana had raised Rs93 crore ($14 million) in Series B round of financing from Kaizen Private Equity and Zephyr Peacock India, along with existing investors Elevar Equity, LGT Venture Philanthropy and Omidyar Network. In series A round, Varthana had raised Rs32 crore from marque investors, including former Credit Suisse banker Vikram Gandhi and Genpact founder Pramod Bhasin in 2015.
As of August 2016, Varthana supported more than 2,000 schools, 38,000 teachers, and 1 million students, and had disbursed more than $35 million to schools that serve lower and middle income Indians, according to a statement from Accion Venture Lab, a seed-stage investor in Varthana.
Vistaar Financial Services, founded by Brahmanand Hedge and Ramakrishna Nishtala in 2010, has disbursed Rs1,000 crore in loans to more than 100,000 customers so far.
Mails sent to Sudesh Chinchewadi, chief financial officer and company secretary at Vistaar, and Brajesh Mishra, director and chief operating officer of Varthana, were not answered till press time while a spokesperson at Westbridge Capital declined to comment.
“The reset in financial services sector has opened opportunities for well-managed and capitalized NBFCs to scale up rapidly, particularly in segments such as affordable housing finance, SME lending and consumer finance. This is reflected in heightened investor interest in the segment, both in public and private markets," said Ausang Shukla, managing director of Ambit Corporate Finance.
About 36 million enterprises in the MSME (micro, small and medium enterprises) sector contribute to over 45% of India’s manufacturing output, Vistaar said in a statement on its website.
The total unmet demand for the MSME sector is close to Rs2.9 trillion, which offers a unique opportunity for micro, small and medium sized enterprises, it said.
Several NBFCs in the south have raised money from PE investors to expand their footprint. Five Star Business Finance, a Chennai-based NBFC in the MSME segment, has raised $50 million (Rs300 crore) from Norwest Venture Partners and Sequoia Capital, and existing investors Matrix Partners and Morgan Stanley Private Equity Asia.
CDC Group Plc, a UK government development finance institution, is in advanced talks to invest more than Rs100 crore in Veritas Finance Pvt. Ltd, a Chennai-based NBFC that lends to micro and small enterprises, Mint reported last month. Veritas Finance had raised Rs30 crore from Lok Capital and Caspian Impact Investment Adviser in a series A round of fund-raising in 2016.
Last year, IFMR Capital Finance Pvt. Ltd, another Chennai-based NBFC, raised around $75 million (around Rs500 crore) from Standard Chartered Private Equity (SCPE), and Eight Road Ventures in two separate fundraising deals. The Bengaluru-based Janalakshmi Financial Services Pvt. Ltd, an erstwhile microfinance institution and now a small finance bank, had raised around $260 million from a clutch of investors—Morgan Stanley Private Equity Asia, TPG and CDC Group.
However, PE investments in NBFCs have dropped in the last three years. Compared to investments worth $1.2 billion in 2015, the year 2016 has witnessed deals worth $888 million and $258 million so far in 2017, according to data from advisory firm Grant Thornton. “The key differentiator will be the quality of risk management systems and high quality teams that bring cross-cyclical experience of building scalable platforms," Shukla added.