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EQT is set to become the leading candidate for acquiring Aavas Financiers Ltd, owned by Kedaara Capital and Partners Group. Competing with CVC Capital and Bain Capital, EQT's potential acquisition could reach nearly INR 6,976 crore. This transaction would involve a 51% stake, following an open offer for an additional 26% from public shareholders. Aavas, with a market valuation of INR 13,812 crore, has seen significant growth and now manages assets worth INR 17,313 crore. The acquisition highlights the ongoing interest in the affordable housing finance sector, attracting major private equity investments.
EQT, a buyout group, is set to become the leading candidate for the acquisition of Aavas Financiers Ltd, a notable player in the affordable housing finance sector. The company is currently under the ownership of Kedaara Capital and Partners Group, who are looking to divest their eight-year investment. This development highlights ongoing trends in private equity as firms aim to strengthen their positions in a rapidly expanding market. Advertisement
EQT is competing with other major private equity firms, including CVC Capital Partners and Bain Capital. Bids are expected to be submitted in early August, with strong interest reflecting the profitability and growth potential in affordable housing finance. Kedaara and Partners currently hold around 26.5% of Aavas, and their exit will trigger an open offer to acquire an additional 26% from public shareholders, resulting in a change of control for the company. With its current market valuation around INR 13,812 crore, a 51% stake sale could result in a buyout worth nearly INR 6,976 crore, potentially marking the largest acquisition in this sector to date.
It is worth noting that Aavas Financiers has seen its stock rise by 11% over the last three months due to speculation surrounding the sale. However, bidders are under pressure as market conditions may not allow for a premium offer. If the expected offers do not align with seller expectations, Kedaara and Partners could consider divesting through block trades in the public market, similar to their recent strategy.
Aavas has seen significant growth since its inception as a subsidiary of Au Financiers in 2011. The company reported a robust asset under management (AUM) growth of 28% from FY18 to FY23, culminating in an AUM of INR 17,313 crore in FY24. With 367 branches across 13 states, primarily in northern and central India, Aavas is well-positioned within the affordable housing market. This positioning is further enhanced by its performance in FY24, where it reported a profit after tax of INR 491 crore backed by total revenues of INR 2,020 crore.
Despite facing challenges like the departure of its CEO, Aavas has demonstrated resilience and a commitment to maintaining growth. Industry analysts expect continued strong growth in disbursements, with anticipated increases in AUM driven by a growing need for affordable housing financing. Aavas is adapting to market challenges by shifting towards higher-yield loans, targeting lower-ticket amounts. This strategy encapsulates the broader trend within the housing finance sector as firms actively seek to meet the demand for accessible financial solutions amid increasing competition.
As the affordable housing finance sector continues to attract private equity interest, major players like Blackstone and Warburg Pincus have significantly invested in the space. Notably, Blackstone-backed Aadhar Housing holds a leading position with INR 19,900 crore in AUM and is viewed as a direct competitor to Aavas. The competition in this growing market suggests that both firms will need to innovate and enhance their service offerings to secure a leading advantage.
EQT, along with Bain and other financial firms, has made substantial moves into the financial services sector. This includes a recent investment in HDFC Credila Financial Services, which demonstrates the ongoing shift towards financial services within private equity. Analysts emphasise that the housing finance sector presents a steady growth opportunity compared to other financial avenues due to its lower risk profiles.
In conclusion, the potential acquisition of Aavas Financiers by EQT or another private equity firm highlights the continued interest and investment in the affordable housing finance market. As companies navigate changing market dynamics and seek to maintain competitiveness, it is clear that the affordable housing sector will remain an important focal point for investment in the coming years.
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