The unlisted market in India has also gained the interest of investors as established businesses keep opting to stay out of the stock market and off the public eye longer, allowing investors to invest pre-IPO. India’s unlisted market has surpassed 2 lakh crore with the impetus of investors who were interested in being part of high-growth but reputed corporate-backed stories.
Hero Fincorp Ltd. is one of the leading Non-Banking Financial Corporations (NBFCs) in India. The company has grown tremendously in its business and is no longer confined to focusing on the ecosystem of Hero MotoCorp, but has extended its operations to various retail and SME lending areas.
By FY2024, the Hero Fincorp revenue stood at 83,597 million INR, and the net income (including other income) reported 12482 million INR. With respect to its market capitalisation in the unlisted market of 207,721.8 million, this highlights its huge role in the Indian financial services arena.
About The Company
Hero Fincorp Ltd. is an Indian company incorporated in December 1991 and named Hero Honda FinLease Limited. The rebranding came about due to the restructuring of the parent company, and the business changed its name to Hero Fincorp Limited in July 2011. The company started by offering financial services in the Hero MotoCorp ecosystem, as term loans, machinery loans, and bill discounting.
Since 2013, Hero Fincorp has mounted an ambitious growth in the consumer lending and SME financing businesses, which provide products like:
- Retail finance of Hero two-wheelers
- Financing of used cars
- Loan against property (LAP)
- Personal loans
- Bill is discounting the suppliers of Hero MotoCorp
- SME loans
It also has a subsidiary called Hero Housing Finance Ltd., which got a housing finance (HF) license by the National Housing Bank (NHB) in 2017, extending its presence to mortgage lending. The Hero Fincorp has been associated with the Hero Group and hence has been able to extend its operations as well as to gain the trust of its customers and investors.
Analysing Financial Performance Of Hero Fincorp
Revenue Growth
The revenue expansion of Hero Fincorp has been impressive, as it has increased by approximately five times (12 per cent per annum) in six years, that is, 16,945 million (FY2018) to 83,597 million (FY2024).
Profitability Trends
The firm had a huge change of direction after the pandemic. It registered a net profit of 12.482 million in the FY 2024, which is a clear indication of resilience and operational restoration, having started with a net loss of 1919 million in the FY 2022.
Return Metrics
- Return on Equity (ROE): 1.4% per cent in FY2024
- Return on Total Assets (ROA): 0.1% per cent in FY2024
- Although the ROA is low, the ROE indicates good value creation by shareholders due to the leverage of NBFC operations.
Capital Structure
In FY2024, Hero Fincorp has a debt-to-equity ratio of 9.4x, which is high as usual due to the NBFC nature of its operations. But, its massive increase and favourable trend of growth with earnings reduces to some extent the risks of greater leverage.
This P/E ratio of 31.5x indicates that the market has high growth expectations for Hero Fincorp. It has a sensible P/B multiple of 3.5x, which accounts for its premium price-to-trade relative to its conventional peers, due to the robust Hero brand and the growth of its business segments.
Cash Flow dynamics
The cash flows of Hero Fincorp have been unstable. In FY2024, the operating activities led to an operating cash outflow of 92,388 million, which is mainly due to capital provision in the lending activities, which is usual with most NBFCs, as they expanded lending books.
Part of these outflows was partially offset by financing activities of 87,173 million. Its cash flow of FY2024 showed a negative net cash of 6,514 million rupees, which indicates that its business is capital-intensive.
Dividend Policy
Hero Fincorp has not announced any dividend in FY2024 as it is in the process of augmenting its portfolio and expanding its business, and would like to have a strong balance sheet. To investors, this is an indication that it is growth-oriented as opposed to distributing immediate income.
Earnings Per Share (EPS)
This is indicated by the recovery and profitability trend by showing a rise of EPS of Hero Fincorp to 50.0 in FY2024, from a negative reading in FY2022.
Conclusion
Hero Fincorp reflects the changing aspect of the NBFC industry in India. This company started as a business within the Hero MotoCorp ecosystem with its own ultra-low-cost model and has become a diversified retail lender, SME lender, and player. As Hero Fincorp is a significant player in the Indian unlisted market, it is weak at 63 per cent leverage, but its growth in revenues, recovering profitability, and the safety of the Hero brand are valuable characteristics.
Hero Fincorp Unlisted Shares can be a good opportunity for investors interested in investing in the developing consumer and SME lending sector in India.