Multiples PE to launch housing finance company

Mumbai: Multiples Alternate Asset Management Pvt. Ltd, promoted by former ICICI Venture chief Renuka Ramnath, is set to make its first investment from its second fund by launching a housing finance company, said a senior executive of the fund.

“We are planning to set up a platform for housing finance lending and we will be investing around Rs.100 crore (in it) initially from our second fund,” said Prakash Nene, managing director and chief financial officer at Multiples.

The aim is to target lower income groups, he said.

“People who are in the urban lower-middle-class category or people who work in the unorganized sector find it difficult to get loans and there is a huge opportunity in this segment, and we are looking to address that segment,” he added.

The housing company, which will cater to the needs of customers in the metros and smaller cities, is currently seeking approvals and hiring people.

Multiples will invest in the company from the second fund it is currently raising.

Multiples has raised $376 million from offshore investors and has completed the first close of the fund in April. Last week, it received the approval from the markets regulator to raise capital from domestic investors and plans to do the first close next week by raising Rs.180 crore. It is aiming to raise $500 million from overseas investors and Rs.600 crore from domestic investors.

In total the fund will end up raising $600 million, which will be invested across consumer, financial services and pharmaceuticals sectors.

Multiples has been focusing on exiting some investments from its first fund of $405 million raised in 2010. The fund recently invested in Luminous Water Technologies Pvt. Ltd. Its other investments include third-party logistics and technology service provider to e-commerce companies, SSN Logistics Pvt. Ltd, Arvind Ltd, Vikram Hospital, the Indian Energy Exchange and PVR Ltd.

The investment in the housing finance company will not be Multiples’ first in the finance space. Multiples’ first fund invested in two companies in the financial services industry. According to media reports from VCCircle, in 2012, the private equity (PE) fund picked up a 5.58% stake in South Indian Bank Ltd for nearly Rs.165 crore in an open-market transaction. It also invested in Cholamandalam Investment and Finance Co. Ltd, the non-banking financial company of the Murugappa Group, by buying shares worth nearly Rs.106 crore in 2012. The fund has exited both the investments.

Other funds, too, are eyeing the housing finance market.

Last week, Fullerton India Credit Co. Ltd, the Indian non-banking financial company owned by the Singapore government’s investment firm Temasek Holdings Pte Ltd, said it plans to set up a new housing finance company, buoyed by its recent success in retail lending in India. Fullerton India has already applied to the National Housing Bank for a licence to set up a new subsidiary with an initial investment of Rs.100 crore.

The housing finance business in India is dominated by State Bank of India,Housing Development Finance Corp. Ltd, ICICI Bank Ltd, LIC Housing Finance Ltd, and Axis Bank Ltd.

Over the last six months, shares of several smaller housing finance companies have risen. Stocks of Dewan Housing Finance Ltd, GIC Housing Finance Ltd, Repco Home Finance Ltd, Can Fin Homes Ltd and Indiabulls Housing Finance Ltd have risen between 11.57% and 51.08%.

“In the past several years, the housing finance sector has seen very robust growth. The sector has seen a compounded growth of 19% over the last five years. However, even with this strong growth, overall mortgage penetration remains low at around 8% and thus the potential for growth is significant,” said Vibha Batra, senior vice-president and co-head, financial sector ratings, Icra Ltd.

According to a report by the rating agency, there has been an emergence of a number of new housing finance companies in niche segments such as affordable housing.

The Indian housing finance market has crossed the Rs.10 trillion mark with a steady growth of 17% annualized for nine months ended December, the agency said.

“Despite the fact that bad debt has been rising, the one segment where non-performing assets (NPAs) have come down is the retail segment, especially housing loans. All the lenders have realised high profitability in this segment and there is unabated continued growth in this segment,” saidSaurabh Tripathi, partner and director at the Boston Consulting Group.

By Icra’s estimates, housing finance companies will need external capital ofRs.18,000-28,000 crore to grow at 20-22% over the next five years, assuming an internal capital generation of 16% while maintaining the capitalization levels at current levels.

“There is a huge opportunity to lend to people who do not have a permanent dwelling and low-cost housing is emerging as a key segment,” Tripathi added. Housing finance companies have been able to maintain their asset quality (gross NPAs of 0.74% as on 31 December 2014). Going forward, Icra expects gross NPAs to remain between 0.7% and 1.1%.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.