Hero FinCorp, the financial services subsidiary of Hero MotoCorp Ltd, a leading name in India's two-wheeler market, has announced a significant strategic move with the approval of a Rs 4,000 crore Initial Public Offering (IPO). This development, disclosed in a statement on May 29, 2024, marks a pivotal moment in Hero FinCorp's evolution and underscores its ambitions to strengthen its presence in the financial services industry.
The proposed IPO will consist of equity shares with a face value of Rs 10 each. The fresh issue of shares is valued at Rs 4,000 crore, alongside an Offer for Sale (OFS) by existing shareholders. This structure aligns with earlier projections made in October 2023, targeting an IPO size of around Rs 4,000 crore.
Overview
Hero FinCorp has established itself as a diversified financial services provider, delivering a broad spectrum of financing solutions including two-wheeler financing, affordable housing loans, education loans, and SME loans. With a strong presence in over 4,000 cities and towns across India and nearly 2,000 retail financing touch points within Hero MotoCorp's network, the company has acquired quite a reputation in the sector.
Presently, Hero MotoCorp holds approximately 40% of Hero FinCorp, while the Munjal family, the promoters, own around 35-39%. The remaining shares are held by notable private equity investors such as Apollo Global, ChrysCapital, Credit Suisse, and select Hero MotoCorp dealers.
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Financial Performance Analysis
In FY 2024, Hero FinCorp reported a total income of ₹8,359.72 crores, a substantial increase from ₹6,447.55 crore in FY 2023. Revenue from operations for the quarter amounted to ₹2,279.92 crore, with net interest income being the primary contributor at ₹2,030.67 crore. The company posted a profit before tax of ₹134.79 crore for the quarter ending March 31, 2024, and a net profit after tax of ₹637.05 crore for the fiscal year.
Asset Quality and Write-offs
Under the leadership of Abhimanyu Munjal, Hero FinCorp wrote off bad loans amounting to nearly Rs 1,200 crore, representing 3.4% of its loan book, in anticipation of its market debut. Despite recording impairments of Rs 1,214.71 crore for the nine months ended December 31, 2023, indicating an improvement in asset quality, the company's gross non-performing assets stood at 7.9% in FY22. Hero FinCorp's assets under management grew by 25% in the first nine months of FY24, reaching Rs 49,127 crore, with a 26% rise in disbursals. Despite significant write-offs, the company saw a remarkable 168% increase in profit after tax, from Rs 461 crore in April-December 2022 to Rs 736 crore in the corresponding period of 2023.
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IPO Facilitation and Investment Banks
To facilitate the IPO process, Hero FinCorp has shortlisted a syndicate of up to eight investment banks. This strategic decision reflects the company's commitment to launching a substantial IPO in 2024, aimed at raising significant funds to support its diverse financial services portfolio and future expansion plans.
The approval of Hero FinCorp's Rs 4,000 crore IPO represents a significant milestone for the company. Backed by the strong support of Hero MotoCorp and prominent private equity investors, Hero FinCorp is well-positioned to attract substantial investor interest. The IPO is anticipated to accelerate the company's growth trajectory and reinforce its standing in the Indian financial services market.
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