Motilal Oswal Private Equity & LeapFrog May Lead Around Rs 500 cr Pre-IPO Funding Round In True North Backed Fincare

Bengaluru-based Fincare Small Finance Bank is all set to seal a pre-IPO (initial public offering) funding round of around Rs 500 crore which is likely to be led by Motilal Oswal Private Equity and impact investment firm Leapfrog Investments, sources with knowledge of the matter told Moneycontrol.

Launched in 2017, Fincare is backed by investors like True North (the oldest & biggest shareholder), TA Associates, Tata Opportunities Fund and SIDBI (Small Industrial & Development Bank of India) and has to list before September 2021 as per the RBI norms for small finance banks.

“The deal is in the final stages and an official announcement can be expected shortly. This round includes a clutch of investors and a few insurance players may also join the duo of Motilal Oswal Private Equity and Leapfrog Investments. Leapfrog is an existing investor in Fincare, but this investment has been planned through a different fund,” said one of the individuals cited above.

LeapFrog Investments is a private investment firm that invests in high-growth financial services and healthcare companies in emerging markets like Asia and Africa. In the Indian financial services sector, LeapFrog has a minority stake in NBFC Magma Fincorp which recently got acquired by a firm owned by billionaire Adar Poonawalla. On the other hand, Motilal Oswal Private Equity’s portfolio includes personal loan app KreditBee and it was earlier an investor in Au Financiers.

“This is largely a secondary trade and the plan is to purchase minority stake both at the hold co and bank level. The proposed deal valuation is 3.6 times price to book multiple (trailing FY21),” a second individual said.

“Fincare is looking to raise between Rs 900 crores and Rs 1,200 crore vi the IPO and is likely to file the DRHP ( draft red herring prospectus) with Sebi in the current quarter. It is being advised by investment banks ICICI Securities, Axis Capital, SBI Capital, IIFL Securities and Ambit Capital” added a third individual.

Suryoday Small Finance Bank hit the markets in March with a Rs 583 crore IPO and had a muted listing. Another player, TPG backed Jana Small Finance Bank filed a DRHP earlier this month to raise Rs 700 crores in fresh capital via an IPO, with existing shareholders eyeing a partial exit through the OFS (offer for sale) route.

“In terms of metrics like AUM growth, ROE, gross NPA and COVID-19 impact, Fincare is well placed when compared to its peers. The IPO will be a mixture of primary and secondary issue of shares. The proceeds will be used to grow the business and the hold co shareholding will be reduced in the bank,” the third individual elaborated.

Fincare’s other listed rivals include AU Small Finance Bank, Ujjivan Small Finance Bank, Equitas Small Finance Bank and micro-finance pioneer Bandhan Bank.

All the three individuals above spoke to Moneycontrol on the condition of anonymity.

In response to an email query from Moneycontrol, True North declined to comment. Moneycontrol is awaiting email responses from Fincare, TA Associates, Motilal Oswal PE and Leapfrog Investments and will update this article as soon as we hear from them. We could not immediately contact the investment banks for an immediate comment.

FOCUS ON FINCARE

Fincare Small Finance Bank is an urban and semi-urban focused lender with two major segments of customers – rural individuals who seek microfinance loans and semi-urban customers who take mortgage loans, including loan against property, affordable housing and gold.

In a recent media interaction, the MD & CEO Rajeev Yadav said, “As of 30th November 2020, Fincare SFB serves over 25.6 lakh customers in 19 states & territories with a workforce of 7,910 people. The size of the deposits is around Rs 5,200 crore. Our loan asset size is around Rs 5,400 crore — balance sheet size is much bigger.”

As per the firm’s 2019-20 annual report, it clocked a total income of Rs 1,216 crores, net profit of Rs 143 crores, gross NPA of 0.9 percent and a capital adequacy ratio of 29.3 percent.

Responding to a query on risks to business due to Covid-10, in a separate interview, Yadav said, “Given the bank’s good performance in the past, we made additional provisions. In any case, we have sufficient profitability to manage the incremental credit issues arising out of COVID-19. As the business is back to near-normal levels, both in terms of disbursement and collection efficiency, there is no incremental risk, unless the situation changes materially on the COVID-19 front.”