London-based Apax Partners has sold around 40 percent of its stake in Chennai-based financial services business Cholamandalam Investment and Finance Company for $102 million via a block deal on India’s National Stock Exchange.
The deal generated a 2.8x return multiple and an internal rate of return north of 60 percent in euros, Shashank Singh, partner and head of India at Apax, told Private Equity International.
Cholamandalam, the financial services arm of Indian business conglomerate Murugappa Group, offers vehicle financing, home loans, home equity loans, and small and medium enterprise loans.
Apax initially invested about $5 million in Cholamandalam in March 2014 through its Apax Global Alpha fund, which allocates capital in equal proportions between private equity, debt, and equity investments. In July 2014, Apax invested another $84 million, acquiring an 8 percent stake in the company through its first global buyout fund Apax VIII, its vintage-2012 vehicle that raised $7.5 billion.
Then in August of the same year, it bought around 2 percent more from the International Finance Corporation, the investment arm of the World Bank, for $20 million.
Singh said that since Apax’s ownership, Cholamandalam has diversified into new areas of business, including SME finance, affordable home loans, and agri loans. “Along with an improvement in the company’s return on asset profile, which used to trade below market peers, it has also seen digital enhancements in terms of distribution, collection, and reporting of loans, and credit decision-making using data and analytics,” Singh added.
Earlier this year, another private equity investor in the company, Malaysia-based Creador, fully exited its investment and Cholamandalam, achieving an internal rate of return of 39 percent and 3.7x return on invested capital.
“In India’s credit market, where both non-banking financial companies (NBFCs) and banks operate, the NBFCs are gaining share from banks for a number of reasons,” Singh noted. “Many Indian banks are distracted and they’ve got problems with their loan books, and so for the large part, they are mainly out of the market. Secondly, there is an increasing appreciation of investments in the NBFC space by the capital market, which is why we are seeing multiples re-rate significantly. And in some sense, NBFCs have a superior business model than banks because they are not subject to the regulatory overhang related to banks. As the Indian economy grows and the demand for credit grows, these businesses will continue to benefit.”
Apax, which manages more than $38 billion of global assets, has invested roughly $500 million in the financial services space in India.
In India, the firm has made investments in several companies, including retail lending business Shriram City Union Finance, healthcare provider Apollo Hospitals, and engineering and software company GlobalLogic.
Apax is currently raising its latest flagship fund Apax Partners IX, which has already secured commitments of nearly $8 billion, against an initial target of $7.5 billion, according to PEI.
This story has been corrected to make clear that Apax has invested roughly $500 million in the financial services space in India alone.