Hyderabad-based NBFC IKF Finance nears $70-80 million funding deal from a sovereign fund, Norwest

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Hyderabad-based non-banking financial company (NBFC) IKF Finance is in advanced talks to raise $70-80 million in fresh primary equity, with a sovereign wealth fund expected to lead the round and Norwest Venture Partners among the likely participants, sources told Moneycontrol.

The deal, which includes both primary capital infusion and a secondary stake sale, is in its final stages, with IKF Finance seeking approval from the Reserve Bank of India (RBI), one of the sources said.

“The deal is closed, and the company has sought RBI’s approval as the lead investor is acquiring more than a 26 percent stake,” one of the sources said. “Some existing investors may also be selling a partial stake as part of the transaction.”

Under RBI regulations, any NBFC shareholding change exceeding 26 percent requires the regulator's approval.

While the primary capital infusion is expected to be $70-80 million, sources said the total transaction size, including secondary sales, will be much larger, positioning IKF Finance for its next phase of growth.

The Motilal Oswal Alternatives (MOA) and Accion-backed NBFC recently amended its Memorandum and Articles of Association to increase its authorised share capital, a move that sources say is linked to the fundraising plans.

Filings reviewed by Moneycontrol state that the increase in share capital is being undertaken “keeping in view the proposed primary investment from the prospective investors.”

Moneycontrol has reached out to IKF Finance and Norwest Venture Partners for comments but has not received a response yet.

This will be among IKF Finance’s largest fundraises. In previous rounds, it secured Rs 120 crore from Teachers Insurance and Annuity Association of America (TIAA) in 2024 and Rs 255 crore from Accion and high-net-worth individuals (HNIs).

The NBFC is heavily focused on Andhra Pradesh and Telangana, which account for nearly 70 percent of its assets under management (AUM). The company has been steadily increasing its footprint to expand beyond these core markets.

In FY24, it entered Odisha, extending its presence to nine states which includes Gujarat, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh and Rajasthan. It ramped up its branch network from 134 to 165 in FY24 and to 179 branches by September 2024, Care Ratings data shows.

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Inside IKF Finance 

IKF Finance, originally incorporated as IndraKeela Financiers Private Limited by VGK Prasad, has a strong track record of more than three decades.

In 2007, Prasad's elder daughter K Vasumathi Devi took over leadership and was later elevated as managing director in 2022. His younger daughter Vasantha now leads IKF Home Finance, its housing finance subsidiary.

The company became a closely held public company in 1994 and was listed in 1995 but delisted from the Bombay Stock Exchange and Ahmedabad Stock Exchange in 2015. As of September 30, 2024, promoters held 42.84 percent of the company, while funds managed by Motilal Oswal Private Equity (MOPE) and Accion Digital Transformation Fund together owned 29.72 percent. TIAA held 7.96 percemt, with the remainder split among other investors.

Cashing the vehicle finance and SME wave 

IKF Finance operates primarily in two core segments — used vehicle financing such as commercial vehicles, construction equipment, and three- and four-wheelers (forming 78 percent of its AUM) and high-ticket SME lending, including loans to other NBFCs.

Its housing finance subsidiary offers home loans and loans against property (LAP).

Over the last three years, IKF Finance’s AUM has grown at a compound annual growth rate (CAGR) of 39 percent, rising from Rs 1,777 crore in March 2021 to Rs 4,811 crore in March 2024, Care Ratings data shows.

This represents a 53 percent year-on-year jump, which increased to Rs 5,386 crore as of September 30, 2024.

In FY24, the company disbursed Rs 3,145 crore in loans, marking a 53 percent increase over the previous year. It ended the fiscal with a profit after tax (PAT) of Rs 102 crore on a total income of Rs 586 crore, a 64 percent and 55 percent year-on-year growth, respectively.

However, the rising cost of funds, which reached 9.48 percent in FY24, along with higher write-offs of Rs 10.41 crore, indicates some pressure on its margins. As of September 2024, the company reported gross NPA of 2.25 percent and a net NPA of 1.75 percent.

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Despite hiccups, NBFCs continue bagging big cheques

Despite ongoing challenges in the NBFC sector, investor appetite remains strong, particularly in MSME and supply chain finance. Several large funding rounds have taken place in FY25, signalling optimism in the space.

Jaipur-based NBFC Finova Capital raised $135 million in a round led by Avataar Ventures, Sofina, and Madison India Capital, with Norwest also participating.

Supply chain finance NBFC Mintifi secured $180 million in a Series E round led by Ontario Teachers’ Venture Growth (TVG) and Prosus, with Premji Invest among the participants.

Rural-focused lender SarvaGram raised $68 million in a Series D round led by Peak XV Partners, while MSME fintech lender FlexiLoans secured $34.5 million in its Series C round from Accion, Nuveen (TIAA’s investment arm), and Fundamentum.

Moneycontrol has exclusively reported on the first three deals.

Aye Finance, backed by Elevation Capital and Alphabet, is preparing for a Rs 1,450 crore IPO, as reported by Moneycontrol in December.