Ahead of IPO, Hero FinCorp writes off bad loans worth around Rs 1,200 crore

Ahead of IPO, Hero FinCorp writes off bad loans worth Rs 1,200 crore

The Abhimanyu Munjal-led Hero FinCorp has written off bad loans worth close to Rs 1,200 crore, representing almost 3.4 percent of its loan book, as the lender looks to clean up its financial records in the runup to its public market debut.

Established in December 1991 as Hero Honda FinLease Ltd, the financial services arm of India's largest two-wheeler maker Hero MotoCorp today is a diversified financial services company, offering a wide range of financing solutions including two-wheeler financing, advances for buying homes inthe affordable housing segment, loans for education, and lending to the small and medium enterprise sector. The lender has a presence in over 4,000 cities and towns across India and nearly 2,000 retail financing touchpoints within Hero MotoCorp's network.

For the nine months ended December 31, 2023, the lender recorded 'impairment on financial instruments' of Rs 1,214.71 crore, coming primarily from bad loans written off, filings by the company show.

This compares to impairments of Rs 1,204.79 crore recorded in the full financial year 2022-23, the filings show.

In a recent report, credit rating agency ICRA noted that while Hero FinCorp’s asset quality profile has shown an improvement in the nine-month period ended December 31, a significant part of it came from high write-offs undertaken by the lender.

“The group’s asset quality profile remains moderate despite the improvement in the gross and net stage 3 ratios to 4.7% and 2.3%, respectively, on a consolidated basis as on December 31, 2023 from 5.4% and 2.8%, respectively, as on March 31, 2023,” ICRA said in its report.

The lender's gross non-performing assets touched a high of 7.9 percent in FY22.

“The improvement was on account of the increased collection efficiency as well as the high write-offs in 9M FY2024 (Rs 1,176 crore and 3.4% of the consolidated gross loan book on annualised basis in 9M FY2024 following write-offs of Rs 1,196 crore (3.0%) in FY2023),” the rating agency said.

“The Hero FinCorp Group’s ability to control fresh slippages and improve the asset quality from the current level, considering the rising share of unsecured loans, would be a key rating sensitivity, going forward,” it added.

Hero FinCorp recorded a 25 percent rise in its assets under management in the first nine months of FY24, growing from Rs 39,381 crore to Rs 49,127 crore, while disbursals rose 26 percent from Rs 19,898 crore to Rs 24,979 crore over the same period.

Despite the high write-offs, the company registered a 168 percent surge in profit after tax, moving up from Rs 461 crore in April-December 2022 to Rs 736 crore in the corresponding months of 2023.

Also Read: Hero FinCorp targets PAT of Rs 1,000 crore in FY25, says CEO Abhimanyu Munjal

Emails sent to Hero FinCorp on the write-offs did not elicit a response.

IPO plans

Moneycontrol reported on October 17, 2023, that Hero FinCorp has shortlisted a syndicate of as many as eight investment banks to launch a mega initial public offer (IPO) of almost Rs 4,000 crore in 2024.

JM Financial, BofA Securities, Jefferies, ICICI Securities, HSBC Securities, UBS, SBI Capital and HDFC Bank had been selected as the advisors, Moneycontrol reported.

Hero MotoCorp owns around a 40 percent stake in Hero Fincorp, the promoters, the Munjal family, hold around 35-39 percent while the balance is held by private equity investors like Apollo Global Management, ChrysCapital, Credit Suisse and some dealers of Hero MotoCorp.

In February 2022, Hero FinCorp raised  Rs 2,000 crore in growth capital from Apollo Global Management and Hero MotoCorp, among others. Apollo Global Management committed Rs 937 crore through its Hybrid Value Fund, while parent Hero MotoCorp, infused Rs 700 crore.