Buyout major TPG has struck a deal to buy Poonawalla Fincorp Limited’s mortgage finance arm, four years after its protracted attempt to acquire ICICI Home Finance to enter India’s burgeoning housing finance market came unstuck.
The alternative investment firm said it will acquire Poonawalla Housing Finance Ltd for a pre-money equity valuation of Rs 3,900 crore ($473 million). It will also infuse additional equity capital up to Rs 1,000 crore ($121 million) into the mortgage lender in the near term to support growth.
TPG, which invests via multiple fund structures and platforms in India including its buyout, growth equity and impact investment arms, said it will acquire the mortgage lender via its regional PE platform TPG Capital Asia.
Poonawalla Fincorp was formerly Magma Fincorp, which at one point counted KKR, ChrysCapital, IFC, LeapFrog and True North as its PE backers. Magma was renamed last year after it was acquired by a company led by vaccine maker Serum Institute of India’s CEO Adar Poonawalla, last year.
Poonawalla Housing Finance is one of the several players in the affordable housing finance segment with 153 branches spread across 20 states. As of September 30, it had assets under management of over Rs 5,600 crore. This comprises affordable home loans (64%) and loans against property (36%), with an average ticket size of around Rs 10 lakh, to self-employed and salaried borrowers.
Its customer base has grown almost four-fold in the last four years given the low mortgage debt penetration, young demographics, family nuclearization.
TPG said it is backing the existing management team led by Manish Jaiswal, Managing Director and CEO of the mortgage lender. Jaiswal has previously worked at some of India’s leading banks, NBFCs and credit rating agencies.
Puneet Bhatia, Co-Managing Partner of TPG Capital Asia, said Poonawalla Housing is “uniquely positioned” to grow in the fast-expanding affordable housing sector, one of the most resilient asset classes across interest rate cycles.
“Driven by tailwinds provided by the government’s various initiatives such as the Pradhan Mantri Awas Yojana, National Housing Bank’s affordable refinancing program, reduction in risk weights for housing loans, and increased regulatory compliance, a growing PHFL is expected to serve an even larger population to fulfil their aspiration of owning a house,” he added.
It would add to TPG Capital Asia’s existing portfolio of financial services companies across Asia, including Five Star Business Finance, Du Xiaoman Financial, Kakao Bank and Singlife.
Ambit acted as exclusive financial advisor to Poonawalla Group on this transaction.
Poonawalla Fincorp separately said the value unlocking of the housing finance subsidiary was one of the stated objectives in its Vision 2025 statement. It said this transaction will help focus on maximizing value creation by optimizing resource allocation and increasing management focus on their respective business needs.
“The transaction will maximize the shareholders’ value in the long term as Poonawalla Fincorp focusses on building a tech-led and digital-first financial services company, with leadership in consumer and MSME financing,” the company said.
Poonawalla Fincorp said it aspires to achieve AUM growth of 35-40% year-on-year over the next three years and will work towards achieving consistent return on assets in the range of 4% to 4.5%.
The company said it will continue to drive consolidation of its branches, manpower and create an efficient structure in line with its growth strategy. It is also poised to explore deep investments in technology and analytics through both organic and inorganic routes.
Adar Poonawalla, Chairman of Poonawalla Fincorp, said: “Financial services business is of strategic importance to us, and we stay fully committed towards creating value for all our stakeholders and building Poonawalla Fincorp into a new age financial services player of choice.”