Au Financiers (India) Pvt. Ltd, a Jaipur-headquartered non-banking financial company (NBFC), is in talks with private equity (PE) investors for a third round of primary funding, said three people familiar with the development.
“The company has initiated talks with Warburg Pincus India Pvt. Ltd, Carlyle India Advisors Pvt. Ltd and other investors,” said one of the persons.
Ernst and Young Pvt. Ltd has been given the mandate, confirmed the second person. Two of them are directly associated with the company, while the third person is a potential investor who has examined the assets of the NBFC.
Au Financiers did not reply to a set of queries emailed to it on Friday. To an email query, Warburg said it was bound by internal operational policies that do not allow discussion of deal-related investment activities. Ernst and Young and Carlyle did not respond to queries.
Incorporated in 1996, Au Financiers offers commercial vehicle loans, car loans, small and medium enterprise (SME) loans, and loans against property.
Operating in the semi-urban and rural segments, the NBFC has 141 branches across Rajasthan, Maharashtra, Gujarat, Goa, Punjab, Madhya Pradesh and Chhattisgarh, according to the company website.
The International Finance Corporation (a member of the World Bank Group), Motilal Oswal Private Equity Advisors Pvt. Ltd and other promoters infused Rs.60 crore in the NBFC in the second round of funding in 2010. The NBFC raised Rs.20 crore in the first round of funding in 2008, which came from Motilal.
Au Financiers’ profit rose three-and-a-half times to Rs.42 crore on a total income of Rs.159 crore in fiscal year 2011, reported domestic ratings agency Credit Analysis and Research Ltd (CARE).
For the first quarter of the current fiscal year (April-June 2011), profit to increased 133% Rs.7 crore from the year earlier. Total income rose to Rs.49 crore from Rs.19 crore, according to the report.
CARE assigned a BBB+ rating for Au’s subordinated debt, reaffirmed an A- rating for long-term bank facilities and an A1 rating for commercial paper in the report. Au Financiers’ assets under management stood at Rs.485.58 crore in the fiscal year ended March 2010.
The NBFC space provides an attractive opportunity for PEs, said Ravi Trivedi, partner, KPMG India Pvt. Ltd. “The return on equity ranges between 16-20%, considering the low-cost model that an NBFC operates in,” he said.
According to VCCEdge, a financial research platform, PEs have already invested more than $38 million in four NBFCs since the beginning of 2012.
In 2011, 34 investments worth $691.76 million were made. In 2009, there were 33 investments worth $267.35 million in NBFCs, which increased to 48 deals worth $895.2 million in 2010.
For an NBFC, operating and risk-management costs are low with branches not requiring a “glass, steel and marble ambience”, Trivedi said. “For banks, the ratio of costs to income range between 45-55%.”
The CARE report added that the rating for Au Financiers’ instruments was constrained by a “moderate resource base with high dependency on the assignments, lack of regional and product diversification and low seasoning of its portfolio due to relatively limited track record of the company”.
Source: Livemint