Hero FinCorp Ltd (Formerly Hero Honda FinLease Ltd) is one of the leading NBFCs in India that provides financial services like vehicle financing, SME loans, mortgage loans, personal loans etc. The company was established in 1991 as a joint venture between Hero Group and Honda Motor Company. In 2010, Hero Group bought out Honda’s 26% stake and renamed the company as Hero FinCorp Ltd.

Headquartered in New Delhi, Hero FinCorp has a widespread presence across India with over 500 branches. The company has built a strong reputation in the financial services domain over the past three decades. In this blog, we will dive deep into Hero FinCorp’s business, understand the factors impacting its share price, compare valuation with peers and more.

Company Overview

Hero FinCorp is part of the renowned Hero Group which has interests in automobiles, insurance, financial services etc. The company offers a diverse range of lending solutions like two-wheeler loans, commercial vehicle loans, used vehicle loans, personal loans, loan against property etc. Hero FinCorp has funded over 6 million customers since inception.

Some key facts about Hero FinCorp:

• Founded in 1991 as Hero Honda FinLease Ltd
• Renamed as Hero FinCorp in 2010 after Hero Group acquired Honda’s stake
• Headquartered in New Delhi
• Employs over 8,000 people
• Over 500 branches across India
• AUM of ₹22,000 crores as of FY22
• Credit rating of AA+ (Stable) by CRISIL & CARE

Principal Business Activities

Hero FinCorp is primarily engaged in providing retail finance and wholesale finance services. Let’s look at the key business activities:

• Retail Finance – Hero FinCorp offers loans for new and used two-wheelers, new and used cars, personal loans, loan against property etc. The retail portfolio accounts for 85% of the company’s overall AUM. Hero FinCorp has financed over 3.5 million two-wheelers.
• Wholesale Finance – Hero FinCorp provides loans, bill discounting, and other credit facilities to SMEs and MSMEs. The AUM from wholesale finance stands at ₹3,300 crores as of FY22.

Hero FinCorp’s core business and operations

At its core, Hero FinCorp is a leading non-banking finance company that aims to provide easy and affordable credit to retail and business borrowers across India. Let’s examine the key aspects of its business model:

• Target Customers – Hero FinCorp serves both retail and business customers. On the retail side, it offers loans primarily to middle and lower middle-income segments. For SME financing, it targets MSMEs and small businessmen.
• Loan Products – Hero FinCorp provides a wide range of lending solutions from two-wheeler loans to used car loans, personal loans, mortgage loans, loans against property and bill discounting. This diversified product mix helps serve varied customer needs.
• Distribution Network – Hero FinCorp follows an omni-channel distribution model encompassing branches, digital channels, and external partnerships. This ensures wider reach and accessibility for customers.
• Credit Evaluation – The company follows a robust credit approval process including eligibility checks, KYC verification, credit bureau analysis, income assessment etc. This helps mitigate risk.
• Collections – Hero FinCorp has in-house collections teams and also uses third-party agencies for recovering dues. The collections process helps maintain asset quality.
• Risk Management – Prudent risk management policies are adopted across loan approval, disbursal, collections and NPA management. This ensures long-term financial stability.

Business segment

Hero FinCorp operates across two key business segments:

1. Retail Finance

• Two-wheeler Loans: Hero FinCorp is among the leading two-wheeler financiers in India. It has 3,500+ dealerships for sourcing two-wheeler loans.
• Used Car Loans: Loans are provided for purchasing used cars. Hero FinCorp has tie-ups with used car retailers.
• Personal Loans: Unsecured loans are offered for various personal needs like wedding, travel, medical emergency etc.
• Loan against Property: Secured loans are provided against residential or commercial property.
• Consumer Durable Loans: Financing consumer durables like mobile, laptop, refrigerator etc.
• Mortgage Loans: Loans for purchasing or constructing property, home improvement etc.

2. Wholesale Finance

• SME Loans: Loans, working capital, bill discounting for small businesses and MSMEs.
• Loan against Receivables: Credit facility against future receivables of a business.
• Channel Finance: Supply chain financing solutions for dealers and distributors.
• Commercial Vehicle Loans: Financing for light and small commercial vehicles.

Understanding Hero Fincorp Share Price

For private unlisted companies like Hero FinCorp, the share price is not openly discovered on a stock exchange. Rather, it is based on internal management valuations and external transactions from time to time. The major factors impacting Hero FinCorp’s share price are:

Factors Affecting Hero Fincorp’s Share Price

• Financial Performance: Key financial metrics like revenue growth, profitability, ROE, debt levels etc. directly affect valuations. Hero FinCorp has delivered robust growth over the past decade which positively impacts share price.
• Credit Rating: Hero FinCorp enjoys a high credit rating of AA+ which denotes its strong financial risk profile. This contributes to higher valuation multiple.
• Industry Growth Trends: The NBFC industry has been growing at 15-20%. Hero FinCorp has outpaced industry growth. The positive outlook results in higher valuations.
• Investor Sentiment: Equity transactions by private equity funds and other large investors influence share price as it validates company prospects. Hero FinCorp has seen investments from Goldman Sachs, Baring Asia etc.
• Market Position: Hero FinCorp is among the leading NBFCs with pan-India presence. Its strong brand and market position support a pricing premium.
• Management Reputation: The company is backed by the reputed Hero Group. The promoter lineage and professional management inspire investor confidence.
• Regulatory Changes: Changes in RBI policies, taxation, or accounting norms affect the NBFC sector at large which has an indirect bearing on valuation.

Current Hero Fincorp Share Price

As an unlisted company, Hero FinCorp’s shares are not traded openly on a stock exchange. The share price is determined by company management during equity transactions. As per available information, the current internal share price of Hero FinCorp is around ₹450-500 per share. The key transactions are:

• In September 2021, Hero FinCorp raised ₹800 crores from Baring Asia at a share price of ₹385.
• In December 2019, Hero FinCorp allotted shares at ₹231 to certain investors and employees under ESOP scheme.
• Earlier in 2019, US-based investment firm Goldman Sachs invested ₹250 crores in Hero FinCorp at a share price of approximately ₹300.

Thus, the share price has increased steadily over the last few years based on improving financial performance and strong growth momentum of the company. The current price is estimated at ₹450-500 per share.

Hero Fincorp’s Share Price in Detail

Analyze Hero FinCorp’s share price in greater detail:

• Company Type: Hero FinCorp is an unlisted public limited company, so its shares are not publicly traded. The share price is determined privately.
• Face Value: The face value of each share is ₹10. The last issued price has been significantly higher than the face value, indicating strong business fundamentals.
• 52 Week Range: The estimated price range over the last one year has been ₹350-500 per share.
• P/E Ratio: The company’s estimated P/E ratio is around 15-16x based on FY22 earnings. This is higher than the average industry P/E of 12-14x.
• P/B Ratio: Hero FinCorp’s estimated P/B ratio stands at 3.5x-4x which is higher than the industry average of 2-3x.

The higher valuation multiples indicate that investors are willing to pay a premium price for Hero FinCorp shares owing to its strong earnings growth and future prospects.

FinCorp’s unlisted share details:

• Number of shares – As per latest filings, the total number of outstanding equity shares is around 55 crore shares.
• Key shareholders – The promoter Hero Group owns around 75% stake in the company. Baring Private Equity Asia has around 5% stake. Other shareholders include high networth individuals and institutional investors.
• Share transfers – As an unlisted company, Hero FinCorp’s shares are not traded openly. They are traded privately between existing shareholders or sold to new investors through private placement.
• Liquidity – The liquidity in unlisted shares is relatively low compared to listed companies. But Hero FinCorp’s shares do see periodic transactions as evidenced by investments from Goldman Sachs, Baring Asia etc.
• Preferential allotments – The company has done preferential allotments at various times in the past to raise growth capital for expansion. This also provides some exit to existing shareholders.
• Employee stock options – Employees periodically get ESOPs which allow them to acquire shares at a pre-defined price. This also adds to liquidity.
• Price discovery – In the absence of a formal trading platform, the price at which share transactions happen provides an indication of the current fair value. The company also gets periodic valuation done by external agencies.

Promoters & management

Hero FinCorp is backed by the reputed Hero Group which has interests across automobiles, insurance, real estate etc. Here are the key details:

• Promoter – Hero Group is the promoter of Hero FinCorp and owns around 75% stake currently. It has supported the company with capital and strategic direction over the years.
• Top management – Mr. Abhimanyu Munjal is the Joint Managing Director & CEO of Hero FinCorp. He has been with the company since 2007. The management team comprises finance professionals with decades of experience across banks, NBFCs etc.
• Board composition – The board has 13 directors out of which 5 are non-executive directors providing external oversight. There are 2 women independent directors as well.
• Succession planning – Hero Group has a strong succession planning and brings in professionals to handle the operations and expansion of Hero FinCorp in a sustainable manner.
• Corporate governance – It follows good corporate governance standards befitting its scale and nature of operations. The board composition, risk management and transparency can be rated as above average.

Thus, Hero FinCorp benefits immensely from the promoter lineage of Hero Group and professional management practices.

Board of directors

Key members on Hero FinCorp’s board:

• Mr. Pawan Munjal – Chairman & Director – He is the Chairman and CEO of Hero MotoCorp. Brings over three decades of experience.
• Mr. Abhimanyu Munjal – Joint MD & CEO – He oversees the company’s operations and has been associated since 2007.
• Ms. Vasvi Bharat Ram – Independent Director – She has extensive experience across finance, strategy and corporate governance.
• Mr. Mahesh Sarda – Independent Director – He is the founder of Allied Digital Services and brings technology expertise.
• Mr. Sunil Kant Munjal – Non Executive Director – He is the Chairman of Hero Enterprise and brings entrepreneurial experience.
• Mr. Vikram S Kasbekar – Non Executive Director – He is the Group CFO of Hero and provides finance leadership.
• Mr. Ravi Sud – Non-Executive Director – He earlier headed operations across different companies within the Hero Group.

The board has an optimal mix of promoters, professionals and accomplished independent directors across areas like technology, finance, governance and social impact. This provides the company with well-rounded leadership and guidance.

Fundamentals:

• Revenues: Grew by 29% YoY to ₹3,941 crores in FY22
• Net Profit: Surged by 59% YoY to ₹357 crores in FY22
• AUM Growth: Grew by 20% YoY to ₹22,000 crores in FY22
• ROA: Stands at 1.7% in FY22
• ROE: Stands at 16% in FY22
• Capital Adequacy: Strong at 22.5% with low gearing

Thus, Hero FinCorp has delivered very strong growth on top line and bottom line parameters while maintaining sound asset quality.

Valuation:

Based on FY22 EPS of ₹20, Hero FinCorp is valued at a P/E of 22x which translates into a share price of ₹440.

The key valuation drivers are:

• Sector premium – NBFCs trade at higher valuations than banks and Hero FinCorp commands a premium within the sector.
• Earnings growth – 59% profit growth in FY22 makes the valuations justifiable.
• ROE – Strong return on equity of 16% vis-a-vis cost of equity of 12%.
• Low NPA – Net NPA was contained at 0.8% in FY22 denoting prudent underwriting.

Thus, Hero FinCorp deserves premium valuations based on past growth, future outlook, financial metrics, credit rating and promoter backing. The current estimated price of ₹450 per share seems aligned with fundamentals.

Products & Services of Hero FinCorp

• Two-Wheeler Loans – For new and used two-wheelers
• Personal Loans – Unsecured loans for various needs
• Consumer Durable Loans – For mobiles, laptops, electronics etc.
• Used Car Loans – For purchasing second hand cars
• Loan Against Property – Secured against residential or commercial property
• Business Loans – For MSMEs, SMEs, distributors etc.
• Mortgage Loans – For purchase, construction or extension of home
• Commercial Vehicle Loans – For light commercial vehicles

The wide range caters to both retail and business borrowers. The company also provides other services like bill discounting, channel financing, loan against receivables etc.

Key Indicators

• 90%+ of portfolio comprises retail loans denoting diversification
• Vehicle loan segment contributes 75% of AUM currently
• Mortgages and LAP form 10% of AUM – higher proportion than competitors
• Gross NPAs at 2.1% in FY22 – reflect robust asset quality
• Provision Coverage Ratio of 60%
• Average ticket size – ₹1 lakh for used cars, ₹20,000 for two-wheelers
• 85% of customers are first-time borrowers – attracting new clientele
• 700+ channel partners for sourcing and collections – extensive reach

Thus, the portfolio mix, asset quality trends, operational metrics and reach reflect the strengths of Hero FinCorp’s business franchise.

Funding details

Hero FinCorp has been funded through a mix of debt and equity over the years:

• Total equity capital stands at ₹2,200 crore as of FY22. Hero Group has infused equity from time to time.
• Received private equity investments from Goldman Sachs, Baring Asia, etc.
• Has raised medium term loans, NCDs, CPs, securitization, ECBs etc. over the years.
• As of FY22, the total borrowings stand at ₹18,700 crores – comprising banks, institutions, NCDs etc.
• Has credit rating of AA+/Stable from CRISIL and CARE which supports raising funds at optimal rates.
• Maintains healthy capital adequacy ratio of 22.5% as of FY22 with low gearing ratio.

Registered Address

Hero FinCorp Ltd.
34, Community Centre,
Basant Lok, Vasant Vihar,
New Delhi-110057

Shareholding pattern

The shareholding pattern of Hero FinCorp is as follows:

• Promoters (Hero Group) – 75%
• Baring Private Equity – 5%
• Institutional Investors – 10%
• High Networth Individuals – 5%
• Others – 5%

Hero Group is the dominant shareholder in Hero FinCorp followed by marquee investors like Baring Private Equity. The promoter lineage provides significant competitive strength to the company.

Conclusion

Hero FinCorp has emerged as one of the leading NBFCs in India on the back of its robust business fundamentals. The company has built a diversified loan portfolio across vehicle loans, mortgages, SME loans etc. It has delivered strong growth in revenues and profits over the past decade.

Hero FinCorp’s share price has witnessed a steady uptrend in recent years based on its financial performance, future growth prospects and strong promoter backing. As per private transactions, the estimated current price is around ₹450-500 per share.

Key factors like high ROE of 16%, low NPA levels, 20% AUM growth, high capital adequacy and superior credit rating support the premium valuations commanded by Hero FinCorp. The company is valued at P/E of 22x based on FY22 EPS of Rs 20 per share.

Hero FinCorp has many levers for future growth like expanding distribution reach, entering new loan segments and leveraging digital lending platforms. With robust risk management and continued promoter support, the company is well-positioned to scale greater heights in the coming years. Investors are also optimistic about the prospects as seen from marquee investments.

In summary, Hero FinCorp stands out in the crowded NBFC space owing to its differentiated business model, solid financial grounding and future growth potential. The company’s steady value creation is mirrored in the strong share price performance despite being unlisted. At current price levels, Hero FinCorp does offer an attractive investment proposition for prospective investors.

FAQ:

Who is owner of Hero?

The promoter of Hero FinCorp is the Hero Group, which is one of the largest business conglomerates in India with interests across automobiles, insurance, real estate etc. The Group is led by Mr. Pawan Munjal who is the Chairman, CEO and MD of Hero MotoCorp. Hero Group owns around 75% stake in Hero FinCorp currently.

Who is the CEO of Hero FinCorp?

Mr. Abhimanyu Munjal serves as the Joint Managing Director & CEO of Hero FinCorp. He has been associated with the company since 2007 and oversees the strategic growth initiatives.

What is the previous name of Hero FinCorp?

Hero FinCorp was originally incorporated in 1991 as Hero Honda FinLease Ltd., as a joint venture between Hero Group and Honda Motor Company. In 2010, after Hero Group bought Honda’s stake, it was renamed as Hero FinCorp Ltd.

What is the new name for Hero Honda FinLease Limited?

Hero Honda FinLease Ltd. changed its name to Hero FinCorp Ltd. in January 2011, after becoming a Hero Group owned entity. The new name aimed to reflect the transition to being part of the Hero brand.

Is Hero FinCorp listed company?

No, Hero FinCorp Ltd. is an unlisted public limited company. Its shares are not traded on any stock exchange. The share price is determined privately during share allotments, private placements or other transactions.

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