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CVC Capital Partners has emerged as the highest bidder to acquire a 52.47% stake in Aavas Financiers for INR 7,089 crore. This move follows Kedaara Capital and Partners Group's decision to exit their 26.47% joint investment, achieving a 6x return. The acquisition highlights CVC's strategy to capitalise on India's growing demand for affordable housing. Aavas, with an AUM of INR 17,313 crore in FY24, has shown strong growth in the housing finance sector, despite facing challenges from RBI's tightened norms.
CVC Capital Partners, an European private equity firm, has emerged as the highest bidder for Aavas Financiers, a company specialising in affordable housing finance. This follows the decision of current promoters, Kedaara Capital and Partners Group, to exit their joint investment after eight years, reportedly achieving a 6x return on their investment. The formal announcement about CVC's acquisition was made on Saturday, marking a significant event in the rapidly growing housing finance sector in India. Advertisement
CVC and EQT were the last two contenders for Aavas after Bain Capital withdrew from the bidding process. Both CVC and EQT recognized the increasing importance of the housing finance sector, which has gained momentum due to rising demand for affordable housing solutions amid India's urbanisation and economic growth. Kedaara and Partners hold a combined 26.47% stake in Aavas, and their exit will trigger an open offer for an additional 26% from public shareholders, resulting in a change of control of the company.
The current market capitalization of Aavas is approximately INR 13,020 crore, with CVC offering INR 1,635 per share, slightly less than the previous day's closing price of INR 1,645. Despite this modest discount, Aavas's stock has seen a 19% increase over the past six months as investors anticipated a sale. If the open offer is fully subscribed, CVC could secure a controlling stake of 52.47% in Aavas, potentially spending INR 7,089 crore for the acquisition-the largest of its kind in the Indian housing finance sector.
Aavas Financiers was established in 2011 as a subsidiary of AU Financiers (India) and has experienced substantial growth since its inception. Its assets under management (AUM) have increased at a compound annual growth rate (CAGR) of 28% from FY18 to FY23, culminating in an AUM of INR 17,313 crore in FY24. The company operates primarily in northern, western, and central India, offering affordable housing loans to low- and middle-income self-employed individuals. However, it faces challenges due to its target borrower profile, which is relatively more vulnerable to economic fluctuations.
Analysts anticipate strong growth in disbursements, with projections of 24% growth and a stable repayment rate at 17.5%, predicting an estimated AUM growth of 22-23% over FY 26-27. This growth is critical as the central bank, the Reserve Bank of India (RBI), has begun tightening norms for housing finance companies, impacting credit flow and disbursements in the sector.
CVC Capital Partners has significant experience in managing large funds and owns brands and franchises across various sectors, including healthcare and consumer goods. In India, besides Aavas, it has investments in the Gujarat Titans IPL team and a chain of cancer hospitals. CVC's involvement in housing finance reflects its strategy to tap into India's growing investment landscape and capitalise on opportunities in essential service sectors.
The exit of Kedaara and Partners after their successful stint with Aavas is indicative of the rising interest from private equity firms in India's housing finance market. The sector has garnered attention due to the country's pressing need for affordable housing and the potential for substantial returns on investment. With CVC now at the helm of Aavas, the company is poised for growth, aiming to fulfil the increasing demand for home financing amidst evolving market dynamics.
In conclusion, CVC's acquisition of Aavas Financiers not only signifies a strategic move for the firm but also illustrates the ongoing consolidation trend within the Indian housing finance industry. As the company looks to leverage technology and operational efficiencies for future growth, it remains crucial to monitor how these shifts will impact borrowers and the broader financial landscape in the coming years.
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