Two promoter exits – housing finance industry shakeout?

With the promoters of two finance housing companies leaving the company, will there be a shakeout in the sector?

The two exits – the minor and the major – were announced in quick succession.

The Pune-based Poonawalla Fincorp Ltd has announced the intended sale of its interest in housing finance subsidiary Poonawalla Housing Finance Limited (formerly Magma Housing Finance Limited) to Perseus SG Pte. Ltd affiliated with TPG Global LLC for Rs 3,900 crore.

A few days earlier, Centre Housing Finance Ltd has announced the binding agreement to acquire the housing finance business of National Trust housing Finance Limited for an unknown price.

An affordable housing finance company National Trust Housing has a loan portfolio of over Rs.300 crore and a presence in 17 locations across four southern states.

Under the agreement, Centrum Housing will take over the housing financing business, including the loan portfolio, branches and employees.

However, industry players and pundits told IANS that the existence of the two does not mean a shakeout or consolidation is taking place in the housing finance sector, but rather shows the potential and interests of players.

When a private equity powerhouse like TPG invests in the housing finance sector, it demonstrates the growth potential, industry experts told IANS.

In February 2020, a fund managed by Morgan Stanley PE Asia invested approximately Rs 190 crore to acquire a minority stake in Centrum Housing Finance.

On Poonawalla Fincorp’s departure, Sanjay Agarwal, Senior Director, CARE Ratings told IANS: “They probably want to focus on consumer finance. Home finance is a long-term business and different from consumer finance.”

According to Agarwal, the sale and purchase of two home finance companies shows a lot of interest in the market and is positive for the sellers and buyers.

He said the loan loss for housing finance companies is very low but needs a lot of capital.

“The timing of the sale by Poonawalla is good as the market picks up. I will not say there is any consolidation going on in the industry,” a top housing finance company official told IANS on condition of anonymity.

Regarding the Centrum group’s acquisition of National Trust Housing, an industry official told IANS: “The purchase gives Centrum a flying start in the southern market. It would have taken them about two years to get a … to build a comparable presence.”

The acquisition of National Trust Housing consolidates Centrum Housing’s presence in South India and will help to further increase penetration in the chosen regions, said Jaspal Bindra, Executive Chairman of Centrum Group.

“The market is growing and the pie is big enough for everyone to grow. There are opportunities for all players – big and small. This is driven by the need for housing and the government’s commitment to housing for all. There is a fair degree of growth potential in the coming years,” Lakshminarayanan Duraiswamy, Managing Director, Sundaram Home Finance Ltd told IANS.

Big banks and housing finance companies are coming to small towns and this in turn is causing smaller players like us to explore opportunities in Tier 3 and 4 cities, Duraiswamy added.

“Last year we recorded payouts of Rs 2,350 crore. In the first half of this year, the payout figure is close to Rs 1,800 crore. Our target is to grow by 40 to 50 percent this year and we are on track to achieve this target driven by Tier 2 and 3 growth. The smaller cities are growing faster for us and the self-employed segment is growing faster than the salaried class,” he said.

The housing finance companies like Sundaram Home Finance, Aptus Value Housing Finance India Ltd have also diversified their business by financing small businesses, giving them a wider spread.

Typically, home finance companies follow a monoline business model with an emphasis on home loans and loan against property (LAP), Duraiswamy said.

Sundaram Home Finance’s entry into small business loans versus residential mortgages is a diversification into a new segment of borrowers and an entry into Tier 3 and 4 cities, Duraiswamy said.

According to him, the small business loan portfolio will reach about Rs 15 crore by the end of this year and about Rs 150 crore by the end of the next fiscal year.

“In the long term, we hope to bring this segment’s contribution to about 10 percent of our total payouts,” said Duraiswamy.

Sundaram Home Finance also plans to expand its home loan distribution network by opening about 15 new branches in Tier 2 and 3 cities in Tamil Nadu, Karnataka and Andhra Pradesh by March 2023.

Be that as it may, though banks continued to dominate, accounting for 63 percent of the total home finance portfolio, home finance companies outperformed in FY22, CARE Ratings said in a research report.

After reporting modest growth for two consecutive years, home finance companies reported double-digit growth of 11 percent yoy in FY22, surpassing the 7 percent growth reported by banks, according to CARE Ratings.

“Consequently, the share of HFCs, which has shrunk for the past two consecutive years, improved from 36 percent to 37 percent in FY22. Improvement in the macroeconomic environment, the low interest rate regime and the first signs of recovery were witnessed in the real estate sector were the main catalysts for the high growth,” notes the CARE Ratings report.


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