IPO-bound Hero FinCorp clears bad loans worth ₹1,200 crore
What's the story
In preparation for its initial public offering (IPO), Hero FinCorp, led by Abhimanyu Munjal, has cleared bad loans amounting to nearly ₹1,200 crore. This figure represents approximately 3.4% of the lender's total loan book. Hero FinCorp is the financial services arm of India's largest two-wheeler maker Hero MotoCorp. The company, originally set up as Hero Honda FinLease Ltd. in December 1991, now operates as a diversified financial services provider across more than 4,000 Indian cities and towns.
Financial report
Hero FinCorp's financial performance and impairments
In the nine months leading up to December 31, 2023, Hero FinCorp reported an 'impairment on financial instruments' of ₹1,214.71 crore. This impairment was primarily due to the clearance of bad loans. Interestingly, this figure is comparable to the impairments of ₹1,204.79 crore reported in the entire fiscal year of 2022-23. The company's gross non-performing assets reached a high of 7.9% in FY22.
Credit rating
ICRA observations on Hero FinCorp's asset quality
Credit rating agency ICRA noted that Hero FinCorp's asset quality profile improved during the nine-month period ending December 31, largely due to significant write-offs by the lender. However, ICRA stated that "the group's asset quality profile remains moderate despite the improvement in the gross and net stage 3 ratios to 4.7% and 2.3%, respectively."
Business growth
Hero FinCorp's growth despite write-offs
Despite the substantial write-offs, Hero FinCorp witnessed a 25% increase in assets under management during the first nine months of FY24. The company also reported a 26% rise in disbursals over the same period. There was a remarkable 168% surge in profit after tax, escalating from ₹461 crore in April-December 2022 to ₹736 crore during the corresponding months of 2023.
IPO launch
Hero FinCorp's IPO plans and stakeholders
According to a report by Moneycontrol, Hero FinCorp has chosen a group of eight investment banks to launch an IPO of nearly ₹4,000 crore later this year. The company's stakeholders include Hero MotoCorp, the Munjal family, and private equity investors such as Apollo Global Management, ChrysCapital, and Credit Suisse. Hero MotoCorp owns a majority stake of 40% in Hero Fincorp.