Warburg bought a running model and is happy with it: Ravi Subramanian, MD & CEO, Truhome Finance (formerly Shriram Housing Finance)

Ravi Subramanian, MD & CEO, Truhome Finance (Formerly Shriram Housing Finance)

Letting go of the Sriram Housing Finance brand is as much of an emotional trauma for us as is the excitement of becoming Truhome Finance, says MD & CEO Ravi Subramanian.

With Warburg Pincus stepping in as the new promoter, the company is going a change in identity, though Subramanian emphasised that nothing else changes. Touted as one of the largest deals in the affordable housing finance space, Warburg Pincus took over about 84 percent stake in the entity for Rs 4,630 crore.

What’s good is that the PE major has Rs 400 crore of unutilised capital it can deploy into Truhome when required and is in no particular rush to take the company public. Edited excerpts of an interaction with Subramanian:

What does it mean having a new promoter?

We are very excited that Warburg Pincus has come on board. They understand the space and have a lot of investments in the financial services space. They have a history of supporting teams; they've worked with the existing teams and made things happen. Their investment psychology is more around investing in teams rather than in business models. 95 plus percent of our employees have rolled over their stock options. The day after they completed the transaction with Shriram Finance, they invested Rs 1,200 crore of capital directly into this company. We are now at roughly Rs 3,300 crore of net worth and that is a huge jump for an organisation like us.

From Shriram to Warburg, would it mean a change in the style of your operation?

Warburg has categorically said that they do not want to change anything in the way the company is being run, our strategy, the customer segment, the way we underwrite or we disburse loans and the way we collect loans. They have bought into a running model and they are very happy with it.

Would the transition from a promoter group to strategic investor impact your cost of funds and credit rating?

Their relationships in the banking and financial services space has helped us borrow from lenders who've not lent to us in the past. We expect that after the Warburg transition our cost of funds will go down despite the rating come down from AA Plus to AA. For instance, one of the leading private banks reduced its lending rate to us by 30 basis points the day Warburg transaction was announced. We've been borrowing at 30 - 40 basis points lower than our earlier borrowing cost earlier. Earlier, our borrowing cost was linked to our parent’s borrowing rates, which is running a high margin business. Our yield was their margins and we didn't have a choice. I expect a 25 basis point reduction in the exit cost of borrowing and incremental cost of buying is already coming down by about 40 basis points or so. That said, at AA, we enjoy the highest standard that affordable housing finance businesses get. We are at par with Aavas Financiers and Aadhar Housing.

We first met when you were at Rs 8,000 crore loan book. Now at Rs 17,000 crore of loans and a new promoter, how would you summarise this journey?

When we came in in 2019, the (Shriram) group wanted to exit this company. This team has stood steadfast and built the business through COVID when nobody gave us a chance. Letting go of the Sriram Housing Finance brand is as much of an emotional trauma for us as is the excitement of becoming Truhome Finance. Even for Shriram Finance, had it been anybody else but Warburg, letting us go wouldn’t have been possible. It's like Dhoni joining another franchise by leaving CSK. Now, we need a different transformation from what we had in 2019 because our ambitions are different.

What’s your target for FY26?

We would like to grow our AUM by about 25 – 30 percent annually. Our disbursals will go up by about 10 percent and we will tweak our disbursals to make it more granular. We are currently in the region of about Rs 20 lakh of average ticket, and excluding Mumbai and Delhi it comes to about Rs 19.5 lakh per loan. Most of our growth, going forward, will come in from Tier 2 – 4 cities. We are opening a lot of micro branches. Right now, 55 percent of business comes from metros and rest from Tier 2 – 4 cities. That will now start increasing and will probably head closer to 55 – 60 percent from non-metros.

Are the metros saturating in some sense?

Not at all. We are one of the three pan-India affordable housing finance companies and have 33 percent (loan book) coming in from North, West and South respectively. We need to maintain the geography and need to expand distribution to tier 2 – 4 cities. Also, 80% of business comes from the self-employed clients and 20 percent is salaried. Our growth strategy is to grow the micro branches, go granular and deeper in states where we have strengths. Our objective is to become the No 1 affordable housing finance company in the country in three years. We will be close to Rs 35,000 – 40,000 crore of loan book by FY28. I'll be happy if we get to that stage, keeping our portfolio quality, yields and margins intact.

Will your new investor want you to go public soon?

They've just come in and will want to build this business to make it a top-class affordable housing finance company, and then do an IPO. They will be a very patient investor. In fact, when in the beginning of this it looked like there is a bit of overall career environment deterioration, Warburg’s view was, if deterioration in the current business environment and you want to cut business, go ahead and do that. Warburg has the dry powder of Rs 400 - 500 crore to invest in this company at an appropriate time.

The word on the street is that affordable housing is the next segment where one needs to be cautious. Would you agree?
Some players are at unnaturally high return ratios. That's where the question mark is. One should ask if affordable housing finance companies can really deliver 6 – 7 percent return on assets. If yes, then why aren’t banks leading in this business? All one needs to do is to be sure that as an organisation we are tuned to making sure that the property is legal, and can be repossessed, whether valuations of the property are correct, and the lending is as per the property valuation. We need to make sure that there is enough buffer on loan to value. This is a long-term gestation period game.