MUMBAI: Abu Dhabi’s Mubadala Investment Co, Kotak Pre-IPO Opportunities Fund and Avendus Future Leaders Fund are all set to deploy Rs 1100 crore of primary capital into Warburg Pincus backed Avanse Financial Services, said people aware of the developments. The proposed deal will value the Warburg Pincus-owned NBFC at Rs 8,000 crore, underlying rising interests among alternative asset managers in the space. Earlier this year EQT (Baring PE Asia-EQT) announced the biggest trade in the sector – the buyout of HDFC’s Ltd’s educaton loans arm.
Avanse is the second largest domestic private sector NBFC in the education loan segment with assets under management (AUM) of Rs 8,646 crore in FY23. The firm’s total disbursement in FY23 stood at Rs 6,143 crore, a 2.1x increase over the previous financial year. The company has disbursed loans to over 3.5 lakh students and provided working capital to 1200 institutions.
Avanse Financial Services has financed 4 lakh students across 4,000+ institutes and 30,000+ courses in 50 countries. It has also provided growth and working capital to 2000 educational institutes.
The company plans to go public this year to raise around Rs 4,000 crore and has been in discussions with investment bankers. If the plans of Avanse fructify, it would arguably be the first-ever listing by an education-focused NBFC in India.
US private equity firm Warburg Pincus acquired about 80% stake in Avanse Financial Services, the education finance arm owned by Wadhawan Global Capital, in 2019. The rest of the stake in Avanse is held by Kedaara Capital (12.4%) and World Bank arm IFC.
HDFC Credila is the largest education loan provider with AUM of Rs 15,298 crore on March 31, 2023.
Spokespersons of Avanse and Avendus declined to comment. Warburg Pincus, Mubadala and Kotak didn’t respond to queries.
Avanse Financial’s education loan portfolio was Rs 6,068 crore (70% of AUM) on March 31, 2023. The company extends loans mainly for overseas studies in around 50 countries. Courses in the US account for 52.7% of such loans followed by Canada (18.6%), UK (17.5%), India (5.6%) and others (5.6%).
Education Institution Loans (EIL) constituted 17.5% of the portfolio on March 31, 2023. This goes toward financing working capital as well as the growth capital needs of educational institutions in India. The digital business accounts for 9%. This has an active customer base of more than 150,000 students catering to upskilling and test preparation, according to a CARE Ratings report.
In 2023, the education financing sector enjoyed exceptional growth. As per a CRIF report, the student loan market was worth ?1.36 lakh crore in March 2023, up 23% from the previous year. PSU banks hold the lion’s share of such loans. However, the NBFC segment is gaining. As of March 2023, it was at 18.39% of the market versus 12.60% in March 2022, a year-on-year growth of 80%.
India’s higher education system is one of the largest in the world with over 38 million students pursuing courses in 50,000 institutes in over 1,000 universities.
According to a recent study, Beyond Beds & Boundaries: Indian Student Mobility Report 2023, the number of Indian students studying abroad will likely reach 1.5-2 million by 2025 from 1 million in 2019. Also, spending on overseas education is expected to increase from an estimated $37 billion in 2019 to $70 billion by 2025, it said.
In one among the largest buyouts in NBFC space, BPEA Private Equity Fund VIII (BPEA EQT), along with ChrysCapital had acquired 90 percent stake of HDFC Credila for a valuation of Rs9060 crore from its parent company Housing Development Finance Corporation Ltd. (HDFC), which will retain a 9.99 percent stake.
Auxilo Finserve, another NBFC specialising in education finance, raised ?470 crores ($57 mn) from investors including Tata Capital, Trifecta Leaders Fund and Xponentia Capital last year. Similarly, ChrysCapital-backed education financier Varthana Finance raised Rs116 crore from Blue Earth Capital last month.
Abu Dhabi’s state investment firm Mubadala made its first direct private equity investment in India by acquiring about 10% stake in India’s second largest hospital chain Manipal last month.
Kotak Pre-IPO Opportunities Fund is a Rs 2,000-crore fund which made investments in API Holdings (PharmEasy), cardiac stents maker SMT, Pine Labs, Mobile Premier League, PB Fintech (Policy Bazaar) FSN Ecommerce (Nykaa). The Rs 1,500-crore Avendus Future Leaders Fund II invested in NBFC Veritas Finance, Indegene, FirstCry, fintech startup Juspay, Lenskart, Liscious, logistics service providers Xpressbees and Delhivery among others.
