CVC Capital Partners, a leading European private equity group, has surpassed EQT to become the highest bidder for Aavas Financiers (formerly AU Housing Finance) with a deal valued at Rs 70 billion. The current promoters, private equity firms Kedaara Capital and Partners Group, are set to exit their eight-year investment, which has yielded a 6x return. CVC and EQT were the final contenders after Bain Capital withdrew from the race. On July 28, the source had reported that EQT, CVC, and Bain were the remaining bidders, as private equity investors sought to consolidate their positions in the growing sector. Kedaara and Partners hold a combined 26.47% stake in Aavas, with Kedaara holding a slightly larger share. Their exit will trigger an open offer to acquire an additional 26% from public shareholders and lead to a change in control. Aavas is currently valued at Rs 130.19 billion. The company?s stock has risen 19% over the past six months in anticipation of the sale. If the open offer is fully subscribed, CVC will secure a controlling 52.47% stake, making it the largest buyout in the sector to date, surpassing Warburg Pincus?s acquisition of Shriram Finance in May. According to Abhijit Tibrewal of Motilal Oswal, Aavas trades at 2.8x FY26E price-to-book value, reflecting positive expectations for accelerated loan growth and improved operating efficiencies due to ongoing technology upgrades. Kedaara and Partners previously liquidated 12.6% of their stake in March through a block trade, marking their third liquidity event since their initial investment. The first significant event was the 2018 IPO, which raised Rs 9.5 billion. CVC, managing ?186 billion in assets, is known for owning prominent brands and sports franchises, including Lipton Teas and La Liga. In India, it owns the Gujarat Titans IPL franchise, cancer hospital chain HCG, and Sajjan Chemicals. Globally, CVC?s investments span financial services, industrials, pharmaceuticals, and consumer sectors. The firm has been actively seeking major buyout opportunities in India and was in discussions for partnerships, including a potential bid for Cipla and a joint bid for IDBI Bank with Shriram Group. Aavas, incorporated in 2011 as a subsidiary of AU Financiers (India), was spun off after its parent sought a small finance bank (SFB) license. The company's assets under management (AUM) grew at a compound annual growth rate (CAGR) of 28% from FY18-23, reaching Rs 173.13 billion in FY24. As of March 2024, Aavas operated 367 branches across 13 states, primarily in northern, western, and central India, and reported a profit after tax of Rs 4.91 billion on revenues of Rs 20.2 billion.
Despite recent challenges following the exit of CEO Sushil Kumar Agarwal, Aavas has recovered. The company?s funding costs have remained stable at 6.6%, supported by relationships with leading banks and funding from multilateral agencies like the International Finance Corp, British International Investment, and the Asian Development Bank. However, Icra has noted vulnerabilities in Aavas?s portfolio due to its focus on low- and middle-income self-employed borrowers, who are more susceptible to economic fluctuations. Analysts and management anticipate strong disbursement growth of 24% and stable repayment rates of 17.5%, projecting an AUM growth of 22-23% over FY26-27. (ET)
