At a little over two-years-old, Godrej Capital is one of the newer entrants in the housing finance market. While it is not looking at acquisitions at the moment, the NBFC is keen on portfolio buy-outs to build its book.
“We’re not going to shy away from investments because retail granular book-building will take us time. There are options, without buying a company, to buy a book,” MD and CEO Manish Shah told businessline.
Are you looking at M&As to build your book?
We haven’t had one conversation on any inorganic deal or acquisition. For Godrej, growth for growth’s sake or for size, isn’t a large driver. Our priority is to build a certain quality of team, systems and our own abilities to get runs on the board. As we get to the end of this year, towards profitability and start paying for the next set of ambitions, that would be a good time for us to look at assets that actually bring something unique than just scale. It helps to have the kind of runway and timeframe that the Group has. Also, if you look at all things regulatory and macro, this is no longer a business where capital can be flipped in three years. The model now demands that you have a 10-year view or get out, or co-lend.
As a late market entrant are you comfortable with laying low for an extended period of time?
It’s two sides of the same coin. One is that the growth numbers maybe sound too aggressive to maintain risk. To that I’m saying the demand is good enough. The other thing is if you look at pre-IL&FS, competitive intensity is actually much lower today because a bunch of guys either don’t operate in the space, or they don’t exist anymore, or have moved to different parts of the market. For the slice of pie that we are competing for, there are some fairly simple opportunities if you can spend a bit more time on innovating micro opportunities. Every housing project that we work on, Godrej or otherwise, has a leading financier already present and still half the customers come to us. We’re almost never the cheapest, but very often it’s just about micro innovating around affordability and flexibility.
Isn’t a large part of your current flexibility because of your small size?
One of the benefits we’ve had as a late entrant is we haven’t had to second guess where the RBI is going. We were born even after Covid happened. Flexibility is the space we want to own and has been a part of our DNA since the beginning and we want to further scale by constantly innovating. Also, on account of having our HFC, we’re already middle layer. Directionally, RBI has been clear in letter and spirit that regulatory arbitrage is over.
Does that also mean that the 50 per cent share of Godrej Properties’ customers will have to come down?
As we look at affordable, it will expand. Today, it’s 50 per cent of 75 per cent (share of home loans in total portfolio). Next, it will be 40 per cent of 50 per cent. In five years, less than a sixth of our customer base will be from Godrej Properties.
It goes back to what advantage can be driven home and whether there is an opportunity to test, pilot and prove value in an existing ecosystem and then grow it. So start in the house and demonstrate. What we did on product design, same day product delivery, zero touch loans and other things helped Godrej Properties take the top line up. So we ask developers why don’t we test the partnership over 6-9 months and if they don’t see a direct attributable reason for sales growth, they always have the option to boot us out.
Would you want to make ‘Nirmaan’ a financial marketplace because you don’t yet have plans to monetize from it?
Monetizing isn’t a priority. Nirmaan doesn’t and will not have a P&L of its own because it defeats the purpose. But as long as it’s adding value and the right people sign up, the existing customers will continue to stay with us. If the initiative can help grow the market and take the benefits to our distributor SMEs, the stickiness goes up.
Will you be doing pre-IPO rounds because you’ve been given a 3-5 year timeframe to list?
Very unlikely. We are in phase one that ends five years from now and we need thereabouts of Rs 5,000 crore of capital. A chunk of that is equity and some part is retained earnings, so you need Rs 3,000-3,500 crore. Every year, the group evaluates the toss-up between the funding environment and doing it ourselves. It’s not like every year, you’re going to need capital, so the ultimate goal is that it should become a large engine that gets added to the Group for its future. In order to do so, every other large group company is publicly listed, as should this. The plan is definitely to monetize, to do an IPO, run it like a publicly listed company and create value for capital invested, but there is no gun to our head.
In terms of product development, will you be looking to plug the gaps in the Godrej ecosystem?
As a startup, you want three things -- if the brand resonates in the business , you’ve got the financial chops to play in that space, and you have a good starting point. If you have the first two, and you have an existing customer ecosystem where you want to test it, go that route. In our Rs 1,500-crore LAP book, not a single customer is from Godrej. Our business loans, that we intend to do Rs 1,000 crore this year, none of that comes from the ecosystem. If the ecosystem provides you with a good starting point, great take it, if it doesn’t build it anyway.