AU Financiers to double loan book by FY17

After getting fresh capital infusion from private equity players such as Warburg Pincus and International Finance Corporation (IFC), Jaipur-based non-banking finance company AU Financiers (India) looks to double its asset book to Rs 10,000 crore in three years, according to a senior company executive.

The long spell of economic slowdown has hit its commercial vehicle lending, a key portfolio in business. This portfolio also saw a rise in asset quality pressure, as borrowers found it tough to keep with payment schedules.

With a strategy to hedge risks and broad-base its business, the company has diversified its book over the past two financial years. Small and medium enterprises (SME) and home loan business accounted for 40 per cent of total loan book in March 2014 — a substantial improvement from 25 per cent at the end of March 2013, said Sanjay Agarwal, its managing director.

Between 2009 and 2013, the company’s assets under management (AUM) grew at an aggressive compounded annual growth rate of 95 per cent. Its assets book stood at Rs 4,900 crore in March 2014.

Agarwal said a turnaround in the sector was expected to begin after two quarters. “At present, the company has presence in three areas – commercial vehicles, SME and housing finance and we do not want to start a new product line now. The asset portfolio could grow between Rs 8,000 crore and Rs 10,000 crore by March 2017.”

Earlier this week, the company had received equity funding of $21 million (about Rs 126 crore) in the fourth round from its promoters and investors — International Finance Corporation, Wargburg Pincus and ChrysCapital. The firm had raised equity in earlier rounds in 2008, 2010 and 2012.

The fresh investment will primarily be used for further development of product verticals, expanding its branch network in 10 states, including Punjab, Madhya Pradesh, Chhattisgarh, Delhi national capital region, and Haryana.

AU Financiers’ operations are regionally concentrated with the states of Rajasthan, Gujarat and Maharashtra collectively accounting for over 90 per cent of assets under management.

According to rating agency CARE, AU Financiers’ asset quality has been witnessing some deterioration since the second half of FY13 due to subdued macro- economic environment and the resultant impact on commercial vehicle sector as a whole.

Now, gross non-performing assets have doubled to 1.5 per cent. The company has stepped up credit monitoring and following up with clients in the commercial vehicle and SMEs segments, Agarwal said.

Being of recent vintage, much of AU Financiers’ loan book is yet to season. The company has witnessed significant portfolio growth in the past few years. Its loan portfolio more than doubled from Rs 824 crore as on March 31, 2012 to Rs 1,783 crore as on March 31, 2013. The performance of its recently-originated portfolio needs to be seen. Further, the portfolio seasoning in new geographies is still low, CARE noted.