Tata and L&T in the race for home finance business, valued at Rs 1,500 crore
Investment banking sources said the development tracks big-ticket global restructuring of the entity, which was earlier managed by the postal department of Germany. The Indian piece, known as Deutsche Postbank Home Finance Ltd (DPHF), has been identified as a non-core asset and is therefore being sold.
The company has roped in Standard Chartered Bank as advisor and a formal auction process is on. It is believed that Tata Finance, L&T Finance, Indiabulls and Religare have evinced interest in the asset.
DPHF has been a laggard in the space, even though the company has been trying to grow its business for the last six years across 40 branches nationwide. With a current portfolio of Rs 4,500 crore, DPHF disbursed Rs 1,707 crore in loans last financial year. For 2010-11, the company set a target of Rs 2,500 crore and expected profit after tax to increase by 35 per cent.
At 0.77 per cent, the company claims to have reported one of the lowest gross non-performing assets in the industry last fiscal. DPHF’s net worth is estimated at Rs 500 crore.
Compared to its Indian peers, however, DPHF’s marketshare has been small. HDFC has the largest share with over 30 per cent. Yet, despite its small business size, valuation expectations for the MNC housing finance company at Rs 1,500 crore are steep, pointed out investment bankers, making it arguably the largest transaction in the space.
When contacted, Anoop Pabby, who recently took over as managing director of the company in India, said: “A lot is being said about our company, globally. At this point, I will not be able to comment on any development that is happening in India, if at all.” Deutsche Postbank’s global spokesperson, Hartmut Schlegel, told Business Standard: “We are not commenting on rumours in the market.”
Tata exited the home mortgage space seven years ago, enveloped in negative publicity from the then Tata Home Finance. But like most of its private sector peers like Reliance Capital and L&T, it has been planning an aggressive comeback.
What is interesting, said analysts, was the fact that this transaction is taking place at a time when Deutsche Bank (DB), which owns just below 30 per cent in DPHF parent Deutsche Postbank, is hiking its stake to create a stable counterweight to its volatile investment banking business.
|Mar ‘10||Mar ‘09||Mar ‘08||Mar ‘07|
|Total assets (Rs cr)||4,629||4,153||3,210||2,481|
|Net profit (Rs cr)||61||44||26||9|
|Capital adequacy (%)||17.82||13.83||14.64||15.83|
|Gross bad loans (%)||0.77||0.74||0.84||0.76|
DB recently completed a ¤10.2-billion rights issue to help part finance the acquisition that will eventually see its stake go up to 50 per cent. Clearly, DB does not see any prospects in growing the home finance portfolio in India and, instead, wants to focus on the European retail division of Deutsche Postbank.
With the entry of big banks in the segment, most standalone housing finance companies have been feeling the heat. “The business requires you to raise capital all the time at very cheap rates. And that’s not been easy for these standalone players,” said an investment banker who closely follows developments.
In a recent interview with Business Standard, even the company’s management had pointed out that their biggest challenge is the asset/liability mismatch and that banks should step in to take care of the business.
Over the last few years, the domestic housing finance space has also seen significant consolidation and private equity interest. Religare snapped up Maharishi Housing Finance, while Dewan Housing acquired Vysya Bank’s housing finance arm. IDBI last year tried to sell the business, but decided to merge it with the parent.
There have been reports of Edelweiss eyeing Canara Bank’s housing finance division. PNB sold a 26 per cent stake in PNB Housing Finance to financial services firm Destimoney for Rs 79.17 crore. Destimoney, in turn, was acquired by PE firm New Silk Route in 2008.
According to estimates of rating, research and consulting agency Icra, the total housing credit outstanding in India as on March 31 was over Rs 4.31 lakh crore, against Rs 3.83 lakh crore a year earlier, a growth of 13 per cent. The housing loan portfolios of housing finance companies as a whole reported a growth of 13 per cent in 2009-10—higher than the 10 per cent growth reported by scheduled commercial banks.
With that, the share of housing finance companies in the mortgage market increased to 31 per cent as on March 31, from 29 per cent a year earlier. Going forward, their share could increase further, considering their dedicated and focused approach, relatively superior levels of customer service and the entry of some new players in the market.