Hero FinCorp files DRHP with SEBI to raise ₹3,668 cr via IPO

Hero FinCorp, a non-banking financial arm of Hero MotoCorp, has filed its draft red herring prospectus (DRHP) with capital market regulator Securities and Exchange Board of India (SEBI) to raise ₹3,668 crore through an initial public offering (IPO) route. In the last one year, three NBFCs - SBFC Finance, Fedbank Financial Services, Akme Fintrade India made their debut on the stock exchanges, while Avanse Financial Services and Bajaj Finance recently filed their DRHP with the SEBI to list their shares on the BSE and NSE.

The IPO of CEO Abhimanyu Munjal-led NBFC is a mix of fresh equities worth ₹2,100 crore of face value of ₹10 each and an offer for sale (OFS) of around ₹1,568 crore by existing shareholders and promoters.

As per the DRHP filed with the SEBI, the Delhi-based company may consider raising up to ₹420 crore in the pre-IPO Placemen. If such placement is completed, the fresh issue size will be reduced.

The NBFC intends to use fund raised from fresh equities to augment its Tier-1 capital base to meet future capital requirements towards onward lending which are expected to arise out of the growth in the company’s business and assets.

Established in 1991, Hero Fincorp is engaged in consumer finance businesses and commercial lending. Consumer Finance includes financing Hero MotoCorp two-wheeler, loyalty customer loans and providing loans against property.

For the financial year 2023-24, Hero Fincorp reported total income of ₹8,359.73 crore, up 29.65% from ₹6,447.54 crore in FY23. The profit grew by 32.73% to ₹637.04 crore from ₹479.95 crore in the previous fiscal. The net interest income (NII) grew 23.5% YoY to ₹4,382 crore versus ₹3,545.65 crore in FY23, while net interest margin (NIM) stood at 9.43% %.

On the asset quality front, gross NPA and net NPA levels dropped to 4.02% and 2%, respectively, versus 5.11% and 0. 2.69% as of March 31, 2023.

As per the CRISIL MI&A report mentioned in the DRHP, NBFCs clocked 15% CAGR in credit, between fiscals 2016 and 2018, mainly due to aggressive expansion of their footprint and entry of numerous new players across India. However, the NBFC sector faced headwinds after the IL&FS default in September 2018, followed by a liquidity crisis. Later, funding challenges and the Covid-19 pandemic added to the pressures, curbing growth.

However, NBFCs shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than ₹2 lakh crore AUM at the turn of the century to ₹41 lakh crore at the end of fiscal 2024. During fiscal 2019 to 2024, NBFC credit is estimated to have witnessed a growth at CAGR 10%, while NBFC retail credit is estimated to have grown at 13% CAGR over the same period.

Going forward, CRISIL MI&A expects NBFC credit to grow at 16-18% by fiscal 2025, with microfinancing and vehicle financing to lead the growth in the retail segment, and MSME loans in the wholesale segment continuing to be the primary drivers. Further growth of the NBFC industry will be driven mainly by large players with strong parentage who have funding advantage and capability to invest and expand into newer geographies, it says.

JM Financial, Axis Capital, and Jefferies India are among the book-running lead managers for the issue.