IIFL Holdings Ltd on Monday said its lending business, India Infoline Finance Ltd, has agreed to sell its commercial vehicle (CV) financing unit to IndoStar Capital Finance Ltd, a lender promoted by private equity fund Everstone Group.
IndoStar is acquiring the business for about ₹2,500 crore, R. Sridhar, executive vice-chairman and chief executive of IndoStar Capital, said in a interview over the phone.
The India Infoline CV finance business managed assets worth ₹3,949 crore as on 31 December. These comprised a loan portfolio of ₹2,450 crore and a securitization/ assignment portfolio of ₹1,499 crore. Its 1,337-strong team of employees is located across 161 branches in 18 states.
“After the liquidity crisis, all NBFCs (non-banking financial companies) were either looking to sell or hive off their non-core businesses, or buy companies that will help growth," said Sridhar. “IIFL built a good commercial vehicle financing business, but its scale was not sufficient, so they decided to sell it."
After the acquisition, IndoStar’s assets under management will increase from ₹7,748 crore to ₹11,697 crore, and the joint company will be profit-accretive from day one.
IndoStar currently lends to micro enterprises and to mid-to-large sized corporates in manufacturing services and infrastructure, besides financing vehicle and housing. The acquisition will also add to IndoStar’s drive to create a more retail-oriented lending business. Since 2015, IndoStar, which initially started with a corporate lending business, has been building its retail lending business, which accelerated last year with the setting-up of CV finance and affordable housing finance units.
According to Sridhar, the CV financing business will be the biggest driver of growth for IndoStar. Prior to joining IndoStar in 2017, Sridhar was the managing director and CEO of Shriram Capital and Shriram Transport Finance, one of the biggest CV financiers in the country.
“About 70% of IndoStar’s CV business currently comes from used-vehicle financing, while 60% of IIFL’s CV business came from new vehicle financing. After the acquisition, both fresh and old vehicles will generate equal revenue for at least a year," Sridhar added.
For IIFL Finance, the sale of its CV business will provide capital to be invested in scaling up its core products—affordable home loans, small business loans and gold loans. “This will allow IIFL Finance to grow, without having to dilute equity in the near future," said Nirmal Jain, chairman, IIFL Group. “This is a win-win transaction for both organizations."
IIFL Finance currently offers small-ticket loan products, including mortgages, loans against property, construction finance, gold loans, small and medium enterprise loans and micro-finance loans. It managed assets worth ₹36,400 crore as on 31 December.
The deal marks another sale of a major lending business in 2019, following the liquidity crisis that plagued the NBFC sector after defaults by the Infrastructure Leasing and Financial Services (IL&FS) group. On Saturday, American private equity firm Blackstone group LP announced a pact to buy a controlling stake in Aadhar Housing Finance Ltd. While financial details of the deal were not disclosed, Mint reported that Blackstone had agreed to pay about ₹3,000 crore for Aadhar.