MUMBAI: CVC Capital Partners, one of the largest European private equity groups, has trumped EQT to emerge as the highest bidder for Aavas Financiers (formerly AU Housing Finance).
Current promoters of the affordable housing finance company, private equity firms Kedaara Capital and Partners Group, are looking to exit their eight-year-old joint investment making a 6x return. A formal announcement was made on Saturday evening. ET was first to report the CVC buyout online on Saturday.
CVC and EQT were the final contenders after Bain Capital decided to take a backseat. ET had been first to report on July 28 that EQT, CVC and Bain were the last in the fray, as private equity investors look to consolidate their position in the fast-growing sector.
Kedaara and Partners together hold 26.47% of Aavas, with the former owning slightly more than the latter. Their exit will trigger an open offer for the acquisition of an additional 26% from public shareholders and result in a change in control.
The current market value of Aavas is Rs 13,019.67 crore. CVC is paying Rs 1,635 per share, a slight discount to the Friday closing price of Rs 1,645. But the company’s stock has surged 19% in the past six months in anticipation of a sale.
If the open offer is fully subscribed, CVC is set to own a controlling 52.47%, paying a potential Rs 7,089 crore for the buyout, the largest in the space till date, exceeding Warburg Pincus’ acquisition of Shriram Finance in May.
(TURNLINE) Loan Growth & Operating Efficiencies
“Aavas trades at 2.8x FY26E P/BV (price to book value),” according to a note by Abhijit Tibrewal of Motilal Oswal. “We believe the valuations now largely reflect the positives of the company to accelerate disbursements/loan growth and exhibit operating efficiencies, now that technology transformation is finally reaching its climax.”
Kedaara and Partners liquidated 12.6% of their stake in March through a block trade, the third since they entered the company. The first big liquidity event for the current promoters was the 2018 initial public offering, that helped raise Rs 950 crore.
The PE firms had mandated Jefferies to find a buyer.
CVC manages 186 billion pounds on behalf of investors and is known for owning marquee brands and sports franchises, including Lipton Teas and Infusion, Six Nation Rugby and Spanish football league La Liga.
In India, it owns the Gujarat Titans Indian Premier League (IPL) franchise, cancer hospital chain HCG and Sajjan Chemicals.
Globally, its investments are in the financial services, industrials, pharmaceuticals and consumer segments. CVC has been scouting for big buyout opportunities in India. It was in active discussions to partner Torrent Pharma last year to acquire Cipla. Earlier, Shriram Group and CVC too had explored a joint bid for IDBI Bank.
House of Aavas
Aavas was incorporated as a subsidiary of AU Financiers (India) in 2011 and began operations the following year, but was spun out after the parent applied for a small finance bank (SFB) licence. Reserve Bank of India (RBI) regulations call for either a merger or a sale of business as part of the SFB licence agreement.
Founder Sanjay Aggarwal sold the company to the two funds who bid jointly. Aggarwal retained a single-digit stake, which he eventually sold to the new promoters. The management owns 2% and is classified public shareholder.
Starting in Rajasthan, the company has expanded across states. Its assets under management (AUM) increased at a compound annual growth rate (CAGR) of 28% during FY18-23 and stood at Rs 17,313 crore in FY24. As of March end, Aavas had 367 branches in 13 states, mostly in the north, west and central. It closed FY24 with a profit after tax of Rs 491 crore on revenue of Rs 2,020 crore. Its net worth was Rs 3,773 crore.
Last year, the company faced headwinds following the exit of chief executive Sushil Kumar Agarwal, but recovered after a few months of uncertainty.
The company’s cost of funding remained stable at 6.6% in FY23. Its financial flexibility stems from relationships with all the leading banks, refinance from National Housing Bank, as well as funding support from various multilateral agencies such as International Finance Corp, British International Investment and the Asian Development Bank.
However, credit agency Icra noted its portfolio vulnerability, given its target borrower profile. Aavas’ operations remain focused on low- and middle-income self-employed borrowers, who are relatively more vulnerable to economic cycles and have limited income buffers to absorb income shocks.
Industry analysts and the management are expecting strong disbursement growth of 24% and a stable repayment rate of 17.5%, leading to an estimated AUM growth of 22-23% over FY26-27.
“Credit flow was affected as disbursal to sanction declined from normalised levels of 85-87% to 77-78% on account of RBI circular and impact of seasonality. Disbursals are expected to normalise in the coming quarters,” said Gaurav Jani of Prabhudas Liladhar, referring to the central bank’s move to tighten norms for deposit-taking housing finance companies.
