Investor Zone

Hindujas to sell minority stake in truck finance arm.

The Hinduja Group, owned by the London-based non-resident Hinduja family, will sell a minority stake in truck financier Hinduja Leyland Finance or HLF to private equity investors to raise roughly R100 crore by June and an additional R100 crore by January 2013, a senior company official said.

“The finance business needs capital and we have appointed Chennai-based investment bank Spark Capital to raise money,” S Nagarajan, HLF managing director said in a telephonic interview on Friday. “We expect to close the deal by June and will issue fresh shares to investors.”

“The quantum of stake to be sold will depend on HLF’s value,” added Nagarajan, who declined to divulge the names of the interested investors.

HLF, 50% owned by India’s truck and bus maker Ashok Leyland, will use the money to expand its network and has plans to increase its assets under management to R5,000 crore by March 2013 from R3,000 crore now. “Our challenge is to scale up,” Nagarajan said, adding that the two-year-old company now has 450 branches and 1,500 employees.

HLF’s remaining 50% is owned by Hinduja group companies. “Our share capital will increase by R100 crore to R425 crore by March 2013,” Nagarajan said.

HLF, which earns 40% of its business by providing finance to buyers of its parent’s vehicles, is dwarfed by other truck financiers like Shriram Transport Finance, which has R40,000 crore assets under management.

There are four challenges for truck financiers. One, the ability to borrow at cheaper rates, two, an excellent pool of repaying borrowers, three, the availability of capital and four, a wide network.

“We borrow 80% of our loans from banks and the rest 20% from retail depositors and by issuing non-convertible debentures,” said Umesh Revankar, managing director, Shriram Transport Finance. The company lends 75% of its loans to second-hand truck buyers who are normally discouraged by banks. It has Rs 18,000 crore of securitised portfolio, which means loan receivables are securitised with other lenders for upfront payment.

“Freight availability for customers is the biggest challenge,” said Revankar.

HLF is also slowly reducing its dependence on financing Ashok Leyland products. “We have chosen to finance anything on wheels to widen our product finance,” said Nagarajan. “We now finance from two-wheelers to second-hand trucks, which now accounts 20% of the company's loans.”

“In the long run, these vehicle financiers’ need to shore up the capital base will create opportunities for private equity funds to purchase stakes on these NBFCS (non-banking financial companies),” said R Subramaniam, vice-president at Avalon Global Research. These companies face two main challenges, said Subramaniam. One is to have a good management in place, and the other is to work within the tight Reserve Bank of India framework for deposit-taking NBFCs.

According to Subramaniam, at the national level, they have to mobilize deposits though brokers, which are through fixed deposits or unsecured debentures.