ChrysCapital bullish on future of financial services

MUMBAI : Investing in HDFC Credila Financial Services Ltd is part of ChrysCapital’s strategy to acquire more assets in the financial services segment from its ninth fund, partner and chief investment officer Sanjay Kukreja said in an interview on Tuesday.

Investors Baring Private Equity Asia (BPEA) EQT group and ChrysCapital on Monday agreed to buy a 90% stake in HDFC’s education financing unit Credila Financial Services for $1.3 billion. Housing Development Finance Corp. (HDFC) will retain a 10% stake and a board seat.

ChrysCapital will invest about $270 million out of its ninth fund, which closed at $1.4 billion. It might see some of its limited partners also take part, depending on the investor demand.

“ChrysCapital and BPEA are investing in a 1:4 ratio for the entire deal including a 2,000 crore primary infusion aside from the secondary sale of 90% of HDFC’s shares. ChrysCapital will invest its share in the future expansions as per the ratio,” the firm said in an emailed response to queries.

Kukreja said financial services in India is in a very sweet spot right now.

“We are very optimistic about the future prospects of financial services. That wasn’t the case two years ago,” Kukreja said, explaining factors influencing the firm’s bet on Credila, which some in the market have termed as an expensive deal.

For ChrysCapital, the deal marks a reversal in strategy from two years ago when it dialed back on its financial services investments due to covid.

As a result, ChrysCapital’s eight fund took a strategic call to not make any financial services investments, choosing instead of go big on its digital technology bets—a sector which was seeing exponential growth in consumer online behaviour during covid.

“We had a situation two years ago post covid, when we went back on financial services, specifically for a period of at 24 months. We didn’t deploy anything into financial services during this period. We were not sure how lending focussed financial services businesses would behave after covid with rising unemployment. There were concerns about how (lenders) would collect (on loans),” Kukreja said.

ChrysCapital had also considered an investment from Fund 8 in RBL Bank Ltd, but decided against the deal due to the strategic call it took. It raised $850 million for its eight fund in January 2019.

“Chrys Capital’s exposure to financials in most (previous) funds has been around 35%. But in Fund 8, it was 0%,” Kukreja said.

This will change in Fund 9 where the PE firm has already taken significant exposure in financial services. Credila is the PE firm’s second financial services investment from its ninth fund.

It took a stake in Bandhan Mutual Fund in April 2022 along with GIC; the deal closed in early 2023.

Fears around how covid would dent customer ability to repay loans didn’t bear out. The trend showed loan collections have risen and profits have doubled for some of the firm’s existing financial services portfolio companies, Kukreja said.

“We are entering a period of four or five years, where earnings coming out of financial services in India are probably going to be the highest they have ever been, even when compared to the 2003 to 2007 vintage,” Kukreja said.

“This also explains the pricing (on Credila) that we’ve been able to pay. Because we have a view that is growth, and profitability is actually going to be very, very strong,” he added.

ChrysCapital feels there is a further scope to boost its exposure to financial services from the current fund.

It is looking at fresh investments in the insurance segment across life insurance and health insurance as well as other lenders in SME loan financing and affordable housing.

The PE firm is also invested in the National Stock Exchange from Fund 6 and in Hero FinCorp from Fund 5.

It has previously invested in companies such as AU Small Finance Bank and Bajaj Finserv among others. Broadly, the firm also invests in other sectors such as pharma and healthcare, business and IT services, as well as consumer segments.

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Updated: 20 Jun 2023, 10:30 PM IST