By Abhay Ray 
Introduction
Motilal Oswal Home Finance: Mumbai-based financial services group Motilal Oswal is planning to exit the home finance business. It is reported that Motilal Oswal has decided to sell its housing finance company. This development has taken place against the backdrop of increased deal activity in the affordable residential sector by both private equity investors and the primary market in the last few months. Motilal Oswal has appointed investment bank Avendus Capital to look for potential buyers.
About Motilal Oswal Home Finance
Motilal Oswal Home Finance was initially launched in 2014 under the name Aspire Home Finance Corp. In 2019, the company was rebranded and its name was changed to Motilal Oswal Home Finance. Operator of a housing finance company created to enable home ownership among lower and middle-income Indian families. The company’s specialty lies in offering home, plot, construction, composite, home improvement and home extension loans through its robust technology platform, which enables customers to receive end-to-end processing of home loan applications, from sourcing to disbursement to collections.
How much is the stake of Motilal Oswal ?
The group’s holding company Motilal Oswal Financial Services Limited, along with other wholly-owned subsidiaries, currently holds a 97.49 per cent stake in the housing finance subsidiary, Motilal Oswal Home Finance. While it is not yet known how much money will be raised from the stake, some of its listed competitors in the affordable residential sector – such as Aadhar Housing Finance, Aavas Financiers, Aptus Value Housing Finance India and Home First Finance Company – are trading at 2.8-3.9 times their book value or net worth.
What is the Valuation of the Company
The standalone net worth of Motilal Oswal’s housing finance business was Rs 1,290 crore as of March 31, 2024. As per its equivalent valuation, back-of-the-envelope calculations suggest that the valuation of the company could be between Rs 3,612 crore and Rs 5,031 crore. According to Crisil data.
Loan Book size – Loan book of Rs 4,098 crore as of June 30, 2024, according to Crisil. The loan book was Rs 4,048 crore as of March 31, 2024. Despite facing asset quality challenges, with gross non-performing assets (NPAs) rising to 9.2 percent of loans in FY19, the company has implemented remedial measures, including system strengthening, managerial support, increased oversight, and capital infusion.
Non-performing assets
An August 2021 note by rating agency ICRA said Motilal Oswal Home Finance’s gross non-performing assets (NPAs) rose to 9.2 per cent of loans in FY19. It said the Motilal Oswal Group took several corrective measures, including strengthening systems and processes, management support, increased monitoring and capital infusion.
Improved asset quality
The asset quality situation has improved since then. The NPA ratio stood at 1.3 per cent as on September 30, 2024, down from 2.1 per cent as on September 30, 2023. A peer-to-peer comparison showed that Aadhar Housing Finance and Aptus Value Housing Finance India had NPA ratios of 1.3% and 1.25%, respectively, as on September 30, 2024.
Reason for Sale: Motilal Oswal’s Decision
Motilal Oswal’s decision to sell Motilal Oswal Home Finance could be driven by a variety of factors. While specific reasons haven’t been publicly disclosed, here are some possible explanations for the sale :
- Focus on Core Business Areas
Motilal Oswal may want to streamline its operations and focus on its core business areas, like asset management, broking, and investment banking. Selling the home finance arm could help the company reallocate resources and capital to more profitable or strategic sectors.
- Profitability and Growth Challenges
The home finance sector can be competitive and challenging, with rising NPAs (Non-Performing Assets), regulatory pressures, and fluctuating interest rates. If Motilal Oswal Home Finance is not delivering the expected profits or growth, the company might decide it’s best to exit the market.
- Capital Requirements and Debt Management
Selling a non-core business like home finance might allow Motilal Oswal to free up capital for other opportunities or reduce any outstanding debts. This move could also strengthen the company’s balance sheet.
- Market Conditions and Mergers/Acquisitions
The company might see this as an opportunity to capitalize on the growing interest in the financial services sector, where there’s potential for mergers or acquisitions. By selling the home finance business at the right time, Motilal Oswal may be seeking to take advantage of favorable market conditions.
- Changing Business Strategy
Companies sometimes adjust their long-term strategies based on changes in market dynamics, competition, or internal goals. Motilal Oswal may be looking to shift its focus away from the housing finance space and explore other business models or sectors.
Conclusion
In conclusion, Motilal Oswal’s decision to sell Motilal Oswal Home Finance reflects a strategic move to realign its business focus and potentially free up resources for more profitable ventures. Despite improvements in asset quality, the challenges faced in the competitive home finance sector, coupled with the company’s desire to streamline operations and concentrate on its core strengths, likely influenced this decision. With a solid loan book and a relatively strong valuation, the company may attract potential buyers looking to capitalize on the growing demand in the affordable housing space. This move could also open doors for future mergers or acquisitions, marking a significant shift in Motilal Oswal’s overall business strategy.
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