Hero FinCorp IPO Plans: Expanding Horizons and Increasing Capital

Hero FinCorp Goes Public: Growing Bigger and Stronger

About Hero FinCorp:

Hero FinCorp, established in December 1991 as Hero Honda FinLease Limited, is an associate of Hero MotoCorp Limited (HCML) and one of India's prominent Non-Banking Financial Companies (NBFC). The company specializes in consumer finance and commercial lending, claiming to disburse a loan every 30 seconds.

In addition to providing retail financing for HMCL’s two-wheelers, Hero FinCorp offers bill discounting services for HCML's vendors and suppliers, corporate lending to mid-sized clients and SMEs, loan against property (LAPs), and operates in the leasing business. The company has also expanded into used car financing and loyalty personal loans.

With a 99.24% stake in its subsidiary, Hero Housing Finance Limited (as of FY24), Hero FinCorp boasts over 2,000 retail financing touchpoints and has partnered with more than 2,000 corporate clients. Supported by a robust workforce of over 2,000 employees, the company achieved disbursals totaling INR 34,463.24 crore in FY24.

Financial Snapshot of Hero FinCorp: 

About Hero FinCorp IPO: 

Hero FinCorp, the financial services arm of Hero MotoCorp, is preparing to go public by filing its DRHP (Draft Red Herring Prospectus) with the Securities and Exchange Board of India (SEBI). The company plans to raise ₹3,668 crore through this Initial Public Offering (IPO).

This move is a major step for Hero FinCorp as it seeks to expand its reach and boost its capital base. Going public will help the company secure the funds needed for future growth and strengthen its position in the financial services market. By entering the public market, Hero FinCorp aims to enhance its visibility and support its ongoing development and expansion.

Company Overview

Hero FinCorp operates as a non-banking financial company (NBFC) in India, specializing in delivering a broad range of financial products. These offerings are tailored to cater to the needs of both individual consumers and micro, small, and medium enterprises (MSMEs). By focusing on these segments, Hero FinCorp aims to provide accessible and flexible financial solutions, supporting the growth and development of its diverse client base.

IPO Structure

According to the DRHP, the proposed IPO is structured into two main components. The first component is an Offer For Sale (OFS) amounting to ₹1,568 crore, which involves existing shareholders offering shares. The second component is a new issue of equity shares valued at ₹2,100 crore.

Entities Involved in the OFS

Several key entities are participating in the Offer For Sale. These include AHVF II Holdings Singapore II Pte. Ltd., Apis Growth II (Hibiscus) Pte. Ltd., Link Investment Trust (through Vikas Srivastava), and Otter Ltd. ]

Utilization of Funds

The proceeds from the new share issuance are intended to strengthen Hero FinCorp’s capital position. This strategic move will enable the company to bolster its financial resources, which is essential for supporting future lending activities and achieving its financial objectives. By increasing its capital base, Hero FinCorp aims to enhance its capacity to serve its clients and expand its operations.

Lead Managers

The management of Hero FinCorp’s IPO is being handled by a group of prominent lead managers. These include 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. Their expertise and involvement are pivotal in ensuring the successful execution of the IPO.

Brand Legacy and Parent Company

Hero FinCorp benefits significantly from its association with the well-established "Hero" brand. This brand carries a strong reputation and a rich history in the market, bolstering Hero FinCorp’s credibility and market position. The company leverages the corporate legacy, consistent performance, and solid reputation of its parent company, Hero MotoCorp Ltd, to enhance its own standing in the financial services sector.

Investment by Hero MotoCorp

As of March 31, 2024, Hero MotoCorp holds a 41.19% stake in Hero FinCorp. Since the company’s inception in 1991, Hero MotoCorp has made substantial investments totaling ₹1,469.04 crore in equity capital and ₹700 crore in compulsorily convertible preference shares (CCPS). These investments have been instrumental in supporting Hero FinCorp’s growth and development over the years.

Industry Peers and Valuation

In the DRHP, Hero FinCorp’s industry peers listed on the stock market include notable companies such as Bajaj Finance Ltd, Cholamandalam Investment & Finance Company, Poonawalla Fincorp Ltd, and Sundaram Finance Ltd. The price-to-earnings (P/E) ratios of these peers are 28.77, 34.36, 17.37, and 33.88, respectively. These ratios provide a benchmark for evaluating Hero FinCorp’s valuation relative to its industry counterparts.

Conclusion

The upcoming IPO of Hero FinCorp marks a significant milestone in the company’s journey, reflecting its growth ambitions and commitment to strengthening its financial position. By raising ₹3,668 crore through the IPO, Hero FinCorp is not only expanding its reach but also reinforcing its capital base to support future growth. The involvement of key investors and lead managers further underscores the importance of this offering, positioning Hero FinCorp as a strong player in the financial services sector. As the company prepares for this transition to the public market, it remains poised to leverage its strong brand legacy and substantial investments to drive continued success and expansion.

Disclaimer: This information is for private use only and does not constitute investment advice. Recipients must assess risks and seek advice from financial, legal, and tax professionals. Private market investments carry risks, and there are no guarantees of returns or capital protection. We are not liable for investment decisions.