Poonawalla Fincorp to sell housing finance unit to TPG

Poonawalla Fincorp Ltd, formerly Magma Finance, plans to sell its housing finance subsidiary (Poonawalla Housing Finance Ltd) to an affiliate of private equity firm TPG. The deal will be down with Perseus SG, an affiliate of TPG Global. The valuation of the deal has been pegged at Rs. 3,900 crore or approximately $473 billion. The board has approved the sale but it is subject to regulatory approvals. The group had already identified its core idea as hiving off part of the housing financing business for better value discovery. This was part of their vision statement for the year 2025.

The assets under management (AUM) of Poonawalla Housing Finance had risen by 31% to Rs. 5,612 crore by the end of September 2022. It has a healthy capital adequacy ratio of 39.1% with net worth of Rs. 1,151 crore. The transaction would allow the group to focus more on technology growth and maximize value creation by optimising resource allocation. Going ahead, the cons structure of Poonawalla will be kept at the bare minimum with focus on tech-led businesses like consumer finance and MSME lending. It will be a largely digital based model than a traditional branch based high cost model.

The parent company, Poonawalla Finance, is targeting 35-40% yoy growth in assets under management (AUM) over the next 3 years with target return on assets (ROA) of nearly 4.5%, which is very high by NBFC standards. For that to happen, it has to follow a smart tech based model that is low on physical costs. TPG has confirmed that apart from paying Rs3,900 crore for the housing finance subsidiary, it will also additionally infuse Rs1,000 crore into the housing finance unit to support growth. The idea of the housing finance business is to keep the net non-performing assets (NPAs) of the company at below the 1% mark.

In terms of balance sheet buffers, Poonawalla Finance Ltd has a capital adequacy ratio of 44.9% and also enjoys one of the lowest cost of borrowings among its peers in the industry. It will also explore deep investments in technology and analytics via the organic and inorganic routes. This sale of the housing finance business will further consolidated its strengths it for exponential growth in the coming years. It is planning a lean and mean structure that is efficient and efficacious with growth being driven by technology than by manpower or physical network expansion.