Mumbai: Mumbai-based financial services group Motilal Oswal wants to exit the home finance business and has put its housing finance company on the block, three people aware of the matter said.
The development comes in the backdrop of increased deal activity in the affordable housing space in the past few months, both from private equity investors and in the primary markets.
Motilal Oswal has appointed investment bank Avendus Capital to look for potential buyers, the people cited above added on condition of anonymity.
The group’s holding company, Motilal Oswal Financial Services Ltd, along with other wholly owned subsidiaries, currently holds 97.49% stake in the housing finance subsidiary, Motilal Oswal Home Finance.
While it was not immediately known how much the stake might fetch, some of its listed peers in the affordable housing space—such as Aadhar Housing Finance, Aavas Financiers, Aptus Value Housing Finance India, and Home First Finance Company—are trading at 2.8-3.9 times their book value or net worth.
As per data from Crisil, Motilal Oswal’s housing finance business had a standalone net worth of ₹1,290 crore as on 31 March 2024. Going by peer valuation, back-of-the-envelope calculations show the company could be valued between ₹3,612 crore and ₹5,031 crore.
A spokesperson for Motilal Oswal Home Finance denied the move: “There is no such development of sale of business of Motilal Oswal Home Finance Ltd (MOHFL)”.
The spokesperson added that the company continually evaluates various business opportunities as part of ongoing strategic efforts, and it would “communicate any relevant updates if there is any such specific development in future”.
An email sent to Avendus remained unanswered till press time.
The numbers
The affordable housing finance lender started operations in 2014 as Aspire Home Finance Corp. and was renamed to Motilal Oswal Home Finance in 2019. As of 30 June 2024, it had a loan book of ₹4,098 crore, according to Crisil. The loan book size was ₹4,048 crore on 31 March 2024.
The lender has had its share of asset quality troubles in the past. An August 2021 note by rating agency Icra had pointed out that in FY19, the lender’s gross non-performing assets (NPAs) rose to 9.2% of loans. It said that the Motilal Oswal Group undertook “several remedial measures, including the strengthening of the systems and processes, managerial support, increased oversight, and capital infusion, thereby underscoring its commitment to the venture”.
The asset quality situation has since improved, with gross NPA ratio at 1.3% as on 30 September 2024, down from 2.1% as on 30 September 2023. A peer comparison showed that Aadhar Housing Finance and Aptus Value Housing Finance India had gross NPA ratios of 1.3% and 1.25%, respectively, as on 30 September 2024.
Meanwhile, Crisil Ratings believes that Motilal Oswal Home Finance remains strategically important to Motilal Oswal Financial Services as it gives the group exposure to the housing finance space. This “imparts diversity to its revenue profile and mitigates the effect of cyclicality inherent to capital-market businesses”.
In September 2024, Crisil revised its outlook on non-convertible debentures of Motilal Oswal Home Finance to positive from stable.
Rising deal activity
The decision to put the business on the block comes at a time when private equity investors have taken a keen interest in affordable housing businesses.
For instance, Shriram Finance sold its entire 84.44% stake in Shriram Housing Finance to Warburg’s affiliate, Mango Crest Investment, for ₹3,929 crore in December 2024. The company has since been rebranded as Truhome Finance.
Then, EQT Partners acquired 100% stake in Indo Star Home Finance in September 2024. Earlier, CVC Capital Partners acquired a 26.47% stake in listed Aavas Financiers in August 2024, triggering an open offer for control.
Other private investors such as TA Associates, Prosus Ventures, Norwest Venture Partners and Multiples Alternate Asset Management have also made minority investments. These include investments into Vastu Housing Finance, Vridhi Finserv Home Finance and Shubham Housing Finance.
The segment also saw two large IPOs (initial public offerings) last year. At least a few housing finance companies—including Aadhar Housing Finance—pivoted from a sale process in favour of the public markets because of lucrative valuations. Besides Aadhar, Bajaj Housing Finance also went public last year.
Affordable homes a bright spot
Experts said that the affordable housing segment continues to remain a bright spot supported by rapid urbanization, increasing migration to cities, and a growing middle class, and is likely to continue to be a high growth segment.
“This is particularly attractive for non-banks given limited penetration of large banks allowing HFCs (housing finance companies) to generate attractive risk-adjusted yield,” said Prakash Agarwal, a partner at debt market advisory firm Gefion Capital Advisors.
According to Agarwal, the outlook for the sector continues to remain positive even in the long term and provides enough scope for sustained growth for the players in the segment.
“This allows the sector to attract significant capital as it supports many aspects which investors are looking for in terms of large addressable market, long term prospect, strong visibility, decent returns and regulatory support,” Agarwal said.
Mint reported on 28 December how mortgage lenders are increasingly looking to finance affordable homes on the back of stiff competition from banks in the prime housing space.
The affordable housing loan market in India is estimated at ₹13 trillion, with HFCs constituting ₹6.9 trillion and banks having a share of ₹6.2 trillion, as per National Housing Bank data cited in a joint report from industry lobby body CII and real estate consultancy Knight Frank in December.