Hero FinCorp Writes Off ₹1,200 Cr Bad Loans Pre-IPO

Hero Fincorp recently wrote of its bad debts worth Rs 1200 crore, which represents almost 3.4% of its loan book. This associate company NBFC of Hero MotoCorp is planning to launch an IPO in 2024. Now the lender looks forward to cleaning up its records before asking for funds from the market.

The impact on credit rating.

This year more impairments are being done as compared to previous years. For the first 9 months of FY 23, the NBFC recorded an ‘Impairment of Financial Instruments’ of Rs 1214.71 crore. This was primarily from bad loans which were written off in books. If we compare it with FY 22-23, then the cost of impairments was Rs 1,204.79 crore.

This written-off loan had a direct impact on the credit rating of Hero Fincorp. Credit Rating Agency ICRA recently stated that Hero Fincorp’s Asset Profile has improved in 9 Months of FY 23. A significant reason for this improvement was the high write-off done by the lender.

In its report, ICRA stated “The group’s asset quality profile remains moderate despite the improvement in the gross and net stage 3 ratios to 4.7% and 2.3%, respectively, on a consolidated basis as on December 31, 2023, from 5.4% and 2.8%, respectively, as on March 31, 2023”

“The improvement was on account of the increased collection efficiency as well as the high write-offs in 9M FY2024 (Rs 1,176 crore and 3.4% of the consolidated gross loan book on an annualized basis in 9M FY2024 following write-offs of Rs 1,196 crore (3.0%) in FY2023)

The Hero FinCorp Group’s ability to control fresh slippages and improve the asset quality from the current level, considering the rising share of unsecured loans, would be a key rating sensitivity, going forward” the agency added.

The actual reason behind writing off more loans.

Hero Fincorp is a pre-IPO unlisted company. They are planning for an IPO in 2024. For IPO the most important consideration for any company is the company’s valuation.

Some factors which affect the valuation of a company are:

• Share market trends.

• The company’s business model.

• The company’s potential growth rate.

• Company’s financial performance over the past few years.

• Number of stocks issued in an IPO by a particular company.

• The recent market price (if listed on the stock exchange).

Hero Fincorp is planning its IPO in the coming months. By writing off more loans, the company is improving its financials and credit rating which increases the valuation of its pre-IPO share.

What does Hero Fincorp’s Financials look like?

In the first 9 months of FY 24, Hero Fincorp saw a 25% rise in assets under management, growing from Rs 39,381 crore to Rs 49,127 crore. If we look at the disbursals, they rose by 26% from Rs 19,898 crore to Rs 24,979 crore in the same period.

Despite the increased loan write-offs, the company witnessed an increase in PAT by 168%, from Rs 461 crore in April- December FY23 to Rs 736 crore in the same period in FY24.

All these fundamentals show strong financial backing and a positive investor sentiment for Hero Fincorp.

Hero Fincorp’s IPO plans

On October 24, Money Control reported that Hero Fincorp shortlisted eight investment banks and plans to launch an IPO of 4000 crore in 2024. The company is yet to file its prospectus. But the heavy loan write is a significant indicator of the company cleaning off its financials for a better IPO valuation.

How can you purchase hero fincorp shares?

Despite heavy loan write-offs, hero fincorp ltd has shown increased operations and financial growth, making it a healthy investment opportunity. You can gain from the hero fincorp share price by purchasing it from the unlisted share market.

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