IIFL Finance | ADIA: What ADIA picking up 20% stake means for IIFL Finance

Last year, the loan asset growth was roughly 15%. We believe 15% growth can be managed going ahead as well, says R Venkataraman, Co-promoter, IIFL Group.



The investment by the Abu Dhabi Investment Authority (ADIA) is valuing the home unit at Rs 11,000 crore as per our understanding. The post book value would stand at more than Rs 4,500 crore. What should be the price to book valuation that you are getting? Also, could you tell us about the profitability of this unit?
ADIA is investing about Rs 2,200 crore in our finance company and at a pre-money valuation of about Rs 8,800 crore. So the post money stake of ADIA in our HFC subsidiary will be about 20%. The net worth of the HFC was roughly about Rs 2,700 crore. The exact figure is Rs 2673 crore or thereabouts and effectively post infusion of this capital, our net worth will more or less become close to Rs 5,000 crore. So pre-money is the correct way to look and the pre-money price to book was roughly at about 3.2 to 3.3. The total HFC book as on March 31 was about Rs 24,000 crore. The profit after tax was about Rs 578 crore. One can take it as a book size of Rs 24,000 crore and profit after tax of close to about Rs 580 crore.

By when is the investment expected to come in? Any timeline that you could share with us for the same?
As we disclose to the exchanges, this transaction is subject to regulatory and other approvals. We believe that the transaction will get closed in the next two to three months.

How do you plan to use the proceeds?
As we have said earlier, the entire demand for mortgages and home loans in the country is robust and there is a good runway for growth for this segment and we believe that this capital infusion will help us to grow our loan book, help us to expand our branch network and also make investments in technology and also help us to reduce debt and improve our leverage ratios.

Any plan of demerging the unit and listing it separately going ahead?
See actually this is a question given the fact that we have an invested in a subsidiary so my guess is that the entire listing through the IPO a demerger process will take time and it is up to the board to decide and take a decision at an appropriate time and how to give a proper exit to the investor.

Real estate demand has been very strong but do you think that a couple of rate hikes that the RBI Governor has undertaken could put a spanner in the works?
I will just try to split the entire real estate market into multiple segments because one can’t paint the whole segment with one brush. If you look at the entire real estate market in the country, there are multiple segments – the super luxury segment, the affordable segment, the mid market and things like that.

Our guess is that in the premium segment, the 90 bps increase will optically make some impact because this interest rate hike looks optically high but on the affordable segment, the 90 bps hike is digestible. But having said that, if the interest rates continue the northward trajectory and go up even higher, then we foresee some amount of pressure on demand but we believe that the 90 bps hike in the interest rates can be digested by the market.

What about your disbursements? They were the highest in the fourth quarter around Rs 2,100 crore. What is the sense you are getting for Q1?
It is very difficult for me to give a forward looking statement but I will just try to put in perspective. Last year, instead of looking on a quarter-on-quarter basis, the loan asset growth was roughly about 15%. We believe 15% growth can be managed.

Your home loan on a sequential basis grew about 7% in the fourth quarter. How do you see this growing over the next two years?
As I said earlier, it is not right or proper for us to look at a quarter-on-quarter number because typically the March quarter is good for all businesses as a lot of pent-up demand and closures takes place. Overall, 15% growth rate looks to be achievable.