L&T Finance buys FamilyCredit for Rs 120cr

FamilyCredit had a loan book of approximately Rs 1,287 crore, of which two-wheeler financing constituted 53% and car financing 35% as on 30 June. It has 53 branches in 16 states in India, a presence in more than 1,400 dealer outlets, and more than 400,000 customers, N Sivaraman, President and Whole-time Director at L&T Finance Holdings told CNBC-TV18.

He sees the two-wheeler financing business growing at 25-30% in the next two-three years.

Sivaraman says the company has Rs 300 crore of additional cash lying on its balance sheet, which it may use for “selectively buying assets”. 

Earlier in May, the company had acquired the mutual fund business of Fidelity to expand its presence in the space. Sivaraman says Fidelity buy has received SEBI approval.

Below is the edited transcript of Sivaraman’s interview with CNBC-TV18. 

Q: Can you take us through the details of the contours of this acquisition? How are you funding this Rs 120 crore and how will this add to the current business of L&T Finance Holding?

A: We have about Rs 250 crore of book in the auto loan segment. With this acquisition consolidates and takes us to a total level of about Rs 1,600-1,800 crore  of overall loan book size, which becomes one step towards becoming a material player in this segment. Family Credit comes with around 53 branches and presence in about 1,500 locations, which is important prerequisite for us to be successful in this business.

With our own 100 plus branches and about additional 11 branches which are not overlapping, we create a reach which is going to get far wider than what Family Credit had. The current book size is about Rs 1,300 crore with about 53 percent of book coming in from two wheelers and about 33 percent coming in from auto cars.

Given the way the demographics are evolving in the country and the penetration of two wheeler financing to increase over a period of time as people want to own higher sized vehicle, definitely there is going be to be a large opportunity and should grow in excess of abut 15-25 percent in the next three-five years. This becomes an important opportunity for us and helps us scale up and become a fairly sized consumer financing player as well in the country.

This company has got a capital adequacy of about 16 percent for the Rs 1,300 crore balance sheet and acquisition of Rs 120 crore definitely need substantial value for us in that position. This will further be enhanced with synergy benefit which is by integrating various branches plus the use of centralised operation facility that they have build. Our own ability to bring down the borrowing cost will all make it really value for us overall.

The book quality is good, almost the entire old book has been fully provided for. Also the sourcing quality has been consistently improved. We think all of this will be extremely valued accretive for us.

Q: You all are fairly aggressive buyers. This is Rs 120 crore, before this the Indo-pacific housing was at Rs 110 crore and before that Fidelity paid by L&T Finance, quite a bit. How are you paying for all this now?

A: If you look at our balance sheet, from the proceeds that we raised; we have about Rs 300 crore of additional cash available. We have also invested Rs 200 crore of perpetual debt in L&T Finance, which can be sold and another Rs 200 crore that can be generated. Our investments in the bank today are valued around Rs 500 crore, which is available as an easy liquid resource. Also this holding company is not leveraged at all. We have an option to borrow some amount. So, this provides us with adequate capital resources to meet the needs of this acquisition. We are not being addressed; we are not buying anything that is coming our way.