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Hero FinCorp IPO : Strengthening Capital and Expanding Reach

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Published Date: 29 Aug 2024Updated Date: 31 Dec 20246 mins readBy MOFSL

Hero FinCorp, the financial services subsidiary of Hero MotoCorp, has taken a significant step towards its public listing by filing a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO) amounting to ₹3,668 crore.

As a non-banking financial company (NBFC), Hero FinCorp caters to retail clients and micro, small, and medium enterprises (MSMEs) with a diverse portfolio of financial products, including two-wheeler financing, affordable housing loans, education loans, and SME financing. With a network extending to over 4,000 cities and towns and nearly 2,000 retail financing touchpoints, Hero FinCorp leverages the expansive reach of Hero MotoCorp, solidifying its presence in the financial services market.

Let's delve into details and understand the fundamental outline of this company which will further help you to decide whether to apply for this IPO or not.

IPO Structure and Utilization of Funds

The proposed IPO comprises an Offer for Sale (OFS) worth ₹1,568 crore from existing investor shareholders and a fresh equity issue of ₹2,100 crore. The funds raised from the fresh issue will be strategically deployed to strengthen the company’s Tier-I capital base, ensuring adequate capital for future lending and business expansion. Additionally, a portion of the proceeds will cover the IPO-related expenses.

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The entities participating in the OFS include AHVF II Holdings Singapore II Pte. Ltd., Apis Growth II (Hibiscus) Pte. Ltd., Link Investment Trust (represented by Vikas Srivastava), and Otter Ltd.

Shareholding and Promoter Details

Hero MotoCorp currently holds a 39.61% stake in Hero FinCorp, with the Munjal family, the primary promoters, holding between 35-39%. The remaining equity is owned by private equity investors such as Apollo Global, ChrysCapital, and Credit Suisse, showcasing strong institutional backing.

Competitive Landscape

Hero FinCorp operates in a highly competitive financial services industry, facing competition from domestic and international banks, NBFCs, housing finance companies (HFCs), small finance banks, microfinance institutions, and informal lenders. Key competitors in the NBFC sector include Bajaj Finance Ltd (P/E of 28.77), Cholamandalam Investment & Finance Co. (P/E of 34.36), Poonawalla Fincorp Ltd (P/E of 17.37), and Sundaram Finance Ltd (P/E of 33.88). As competition intensifies, especially in the MSME finance segment with the entry of consumer-facing businesses like e-commerce platforms, Hero FinCorp’s strategic positioning and product differentiation will be critical.

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Financial Performance

Hero FinCorp has demonstrated solid financial performance, reporting a consolidated net profit of ₹636.78 crore for FY 2024, up from ₹479.8 crore in the previous fiscal year. Its revenue from operations increased to ₹8,290.9 crore from ₹6,401.6 crore year-on-year, with a net interest margin of 9.4%. These metrics underscore the company's robust operational and financial capabilities.

Lead Managers and Market Outlook

The IPO will be managed by an array of reputed book-running lead managers, including JM Financial Ltd, BofA Securities India Ltd, HSBC Securities and Capital Markets (India) Private Ltd, ICICI Securities Ltd, Jefferies India Private Ltd, and SBI Capital Markets Ltd.

Hero FinCorp's move to go public marks a strategic milestone in its growth trajectory, reinforcing its capital structure and market position. The company's comprehensive product offerings, expansive reach, and solid financial track record make it a compelling player in the NBFC space. As Hero FinCorp gears up for its IPO, it presents an intriguing opportunity for investors looking to capitalize on the growth potential within India’s evolving financial services landscape.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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