Non-banking finance company Hero FinCorp, an associate company of Hero MotoCorp, India’s largest two-wheeler manufacturer, could be looking at an initial public offer (IPO) after having successfully closed a funding round of ₹2,000 crore recently.
Hero MotoCorp and US-based private equity major Apollo Management participated in the latest fund-raising round of Hero FinCorp.
If Hero FinCorp goes ahead with the listing, it will make the company the only second entity from the Hero group to get listed on the stock exchanges.
Hero FinCorp is an associate of Hero MotoCorp incorporated in the year 1991 as Hero FinLease. The finance company is engaged in providing financial services, including two-wheeler financing and providing credit to Hero MotoCorp’s vendors and suppliers. About 35 per cent of Hero MotoCorp’s vehicle sales availed through finance came from Hero FinCorp.
Niranjan Gupta, Chief Financial Officer, Hero MotoCorp, said, “Hero Fincorp is now fully funded and with their AUM (asset under management) doubling, we don’t see any requirement coming up for the next couple of years. At some stage they will have to plan for their IPO.” Gupta was taking questions in a post earnings call.
Growth of NBFCs
Before the conclusion of the latest funding round, Hero MotoCorp held around 41 per cent in Hero FinCorp. Hero MotoCorp’s Pawan Munjal, who is also the chairman of Hero FinCorp, and his extended family hold nearly 10 per cent in the NBFC in individual capacity. The family’s investment firm Bahadur Chand Investments holds slightly over 20 per cent.
Apollo is estimated to have picked up 9-10 per cent stake in the funding round that was held in January. Mauritius-based Otter Limited has a significant minority stake of 10 per cent in Hero FinCorp.
ChrysCapital, Credit Suisse and Apis Partners are the other investors in the NBFC.
“Hero FinCorp has closed the capital round of ₹2,000 crore which will help them almost double their AUM from their current level of ₹26,000 crore to almost ₹50,000 crore. Their liquidity remains strong and their gearing ratios are at around 4.5 against the allowed 6, which allows them the headroom,” Gupta added.
Two-wheeler finance companies have gained prominence lately. For instance, Bajaj Auto — India’s third largest two-wheeler maker — is setting up a 100 per cent captive finance subsidiary that would finance only those products that are manufactured by the company.
The formation of a new vehicle finance company at Bajaj Auto comes despite the long-continued operation of Bajaj Finance, the NBFC of Bajaj Finserve.
“As we come out of the pandemic, there will be a growth of NBFCs. India’s credit to GDP ratio is very low and therefore it augurs well for well-funded NBFCs which have a strong parentage and actually offering a renewed opportunity to grow given that the finance penetration is still very low,” Gupta added.