Adar Poonawalla On Poonawalla Fincorp To Sell Hsg Fin Biz To TPG | NSE Closing Bell | CNBC-TV18

Good afternoon, Prashant. This side.

Yes, thank you. Great to be here with you to discuss Fincorp and its future strategies. You know, ever since we took over the Magma group around two years ago, I've been focusing on growing the business and digitizing the way in which we've been lending and collecting. Now, we took a strategic call a while back to initially raise capital, if you remember, in Poonawalla Housing, around 15 to 20 percent, just for the natural growth of that company. When we later on received offers from various parties, we called for a board meeting to discuss recently and then decided that when we received an offer for the whole business, that look, the valuation was a fair valuation that we were getting. It has grown substantially over the last two years and you know, these are two different independent businesses which need a lot of capital separately. So we said let's focus our energy on the NBFC and find a great partner like TPG, someone with a vision to grow the Housing Finance Company separately. And you know, that was the basis of the decision. And as a result, you know, Poonawalla Fincorp now will receive, subject to regulatory clearances in the next few months for the deal to go ahead, we've signed a binding document, we'll receive 3,900 crores in Poonawalla Fincorp, which is great for all the shareholders.

Yeah, but I'll tell you the way I look at it, different risk profiles. You know, for a housing business, you need to borrow for the long term because you're lending for the long term. In the NBFC and Fincorp, we've got loans which go out for a few months, we've got up to two years, three years at the most. Now, I feel a lot more comfortable given the scenario right now in terms of risk management and asset liability mismatches which other NBFCs have suffered, borrowing in the short term and lending in the short term as well. And don't forget, our IRRs, our ROAs, ROEs, everything is so much better and easier to achieve in that kind of business. And that's why we thought we would focus on that and leave the housing business to someone else to get into. Having said that, you know, again, we want to do more in the consumer finance part. We want to look at, as I said, digitizing the way in which we lend and collect. We are now internally able to lend out more than 1,200 crores a month. So you've got partnerships and you've got our internal generation machine that can generate loans after pre-checking their credibility and all that. And look, not all of it is going to be unsecured. Let me add, you know, in Pune, all of Fincorp, you've got some LAP, you've got, it's not home properties, but it's small businesses and things. So you do have some part of the book which is going to remain like a secured book.

So look, I mean, the ROA at the moment is 2.4 percent in Poonawalla Housing and ROE 0.4, you know. But in Fincorp, it's substantially higher.

Well, I don't know how much I can mention in terms of what we'll end up achieving. But look, if you look at other comparables and other NBFCs, we plan to be in the top five in terms of those ratios. And I think that's very possible. At the moment, the ROE, for example, is a bit low because we're very under-leveraged. We're below two times, you know, we're leveraged less than two times in Fincorp. And that'll further go down a little bit with the cash that's going to come in. But if we plan to grow at around 30 to 40 percent annually in terms of our AUM, then you're going to see a substantial increase from today's ROE and ROAs as well. And look, with other partnerships that we're doing, the cost of acquisition of customers, including our internal ways of generating customers, is going to improve the ROA substantially as well going forward.

No, I said yes, about 35 to 40 percent is the growth that we're targeting annualized, you know, growing at between 30 to 40 because we don't want to grow any faster than that in Fincorp because, you know, then you're not really taking care of all the things that you need to vet, you know, the loans and the kind of assets that you're building. Look, there was no rush really to sell it. In fact, we weren't putting Poonawalla Housing on the market. It was just that this offer came about and we thought that look, this is a great way to earn cash and bring in some more cash at the Fincorp level which enhances the net worth. And we'll see what to do with that cash. It could be used for making some small fintech acquisitions. It could be used to returning some money to the shareholders with a company buyback. We really haven't decided, all options are open. And the point here is that look, then Fincorp doesn't need any capital for the next five years to grow.

Yeah, it was so good, right? So you took it.

I think you're going to have far fewer branches, you're going to have less physical contact and interaction, which is a good thing because you become more efficient and profitable. So from that angle, going more down the digital route and finding ways to give loans faster, to be able to vet the quality of the assets you're building, and including collecting. When we acquired this group two years ago, look at what we've done. We stopped doing business in certain territories, we stopped certain products which had a very high NPA. We are now AAA rated and double A Plus with other...

Okay, yeah, I'll tell you, we were in certain conversations, but at the moment we're not going to make any acquisitions with fintech until we at least close this deal. Once we have this cash, I think then we'll call for a board meeting and vet and explore options.

Well, I would say between three to four months. And all the regulators that I think we're going to be applying to very soon because we've already got a signed SHA with TPG, so it's a fully binding deal.

Well, that and also to perhaps... Look, we're hardly 1.5 times leveraged and if you want your ratios of ROE and other things to pick up, then you don't want to be very... you need to have a certain level of gearing. So I think we'll explore what to do with the cash. It could be, as I said, some acquisitions, it could be a partial share buyback, you know, and again...

So we'll have to explore all that at that time after the deal closes. We can come to what we'll do with the cash.

I think it's fair to assume around four months. Four months, six months is on the outer side, but I think these regulatory approvals are doable in the next three to four.

I don't know. Look, there aren't many deals that one can... you know, we've worked very hard to turn this group around. I mean, you remember what the share price was and what the assets were and the returns that were there. And we've really worked very hard. And you know, I don't know if we can keep buying assets and then keep turning them around. I think we want to build and focus on our own abilities and strategies internally, preferably. But nothing is off the table. Once we get this cash into the company, we will have to take a view what's in the best interest of all the stakeholders and the shareholders and how it aligns with our vision for the next five to ten years.

No, no, I think, you know, I've just lost the bridge. I think as you said, in three or four months, once all this closes with all the regulatory approval, we'll be waiting for you on that side.

Thank you, thank you.