Indostar Capital sells home finance arm to EQT for ₹1,750 cr; share hits 52-week high

Shares of non-banking financial company (NBFC) Indostar Capital Finance Ltd hit its one-year high on Friday after the company announced the sale of its home finance division to EQT for ₹1,750 crore.

IndoStar Capital's board approved the sale of its subsidiary, IndoStar Home Finance Private Limited (IHFPL), to WITKOPEEND B.V., an affiliate of BPEA EQT Mid-Market Growth Partnership (EQT), a global private equity investor, for ₹1,750 crore on a fully diluted basis.

EQT also plans to invest ₹500 crore into IHFPL upon or shortly after the closing of this transaction and has received the IHFPL board's in-principle approval.

Shares of Indostar Capital opened a gap-up at ₹330.05 on the BSE today and soon hit a one-year high of ₹339.70 on the BSE, up 11.2% from yesterday's close. At this price, the company's m-cap stands at ₹3,912.53 crore.

IndoStar says the transaction will provide the company with capital for accelerated growth and value creation in its core verticals -- vehicle finance and small business loans.

“This transaction represents an important strategic move for IndoStar as we focus on driving accelerated growth and value creation in our core verticals including Vehicle Finance and Small Business Loans," says IndoStar Home Finance CEO Shreejit Menon.

Ashish Agrawal, who's a Partner in the EQT Private Capital Asia advisory team, says retail lending is a key investment theme for EQT within financial services in India. "India’s affordable housing finance sector represents a long-term growth opportunity."

The company says the deal is subject to customary conditions precedent, including receipt of RBI approval, consent from lenders and shareholders’ approval.

Hemant Sharma, MD in the EQT Private Capital Asia advisory team, says Indostar Home Finance has a "market-leading position" in South India and strong underwriting capabilities. "We see significant potential to expand Indostar’s presence across India and drive its digital transformation."

Daiwa Corporate Advisory and Ambit acted as exclusive financial advisors to Indostar Capital Finance and Indostar Home Finance with regard to the transaction. Cyril Amarchand Mangaldas was engaged as the legal counsel to Indostar Capital Finance and Indostar Home Finance. Ernst & Young LLP was engaged by Indostar Home Finance for the vendor financial and tax due diligence exercise, and Samvad Partners was part of the transaction.

The wholly owned subsidiary of IndoStar Capital Finance, IHFPL has expanded to 121 branches across 8 states with AUM of ₹2,395 crore. The company has an employee base of 1,029 and an average ticket size of ₹9 lakh.

The company's consolidated Q1 FY25 assets under management (AUM) stood at ₹9,565 crore vs ₹8,062 crore in the year-ago period, while net total income surged to ₹191.3 crore from ₹145 crore in the year-ago period. The company's NIMs dropped to 6% in the said quarter from 6.5% in the corresponding quarter last year. The company's profit dropped to ₹24.9 crore from ₹38.9 crore in the year-ago period.