Hero Fincorp Limited Unlisted Share

Overview

1. Origin & Background:

• Hero FinCorp was originally incorporated in December 1991 as Hero Honda FinLease Limited. Over the years, it transformed its business model and expanded its range of services.

2. Business Segments:

• Retail Financing: Hero FinCorp is a prominent financier for two-wheelers, primarily for products of Hero MotoCorp, the parent company. It also offers loans for personal use, such as personal loans and consumer durable loans.
• SME Financing: The company provides loans to small and medium-sized enterprises (SMEs). Their products in this segment range from working capital loans to machinery loans.
• Commercial Financing: Hero FinCorp offers loans against property and has a presence in the commercial lending space, helping businesses with their financial needs.

3. Growth & Expansion:

• The company has witnessed rapid growth since the 2010s, expanding its network across India. As of the early 2020s, it had a presence in many cities and towns in India, supported by a vast number of branches.

4. Vision & Mission:

• Hero FinCorp’s vision revolves around creating a leading financial services company in India. Their mission emphasizes customer-centricity, striving to provide quick and transparent financial services to a wide range of customers.

5. Key Management:

• Being part of the Hero Group, the company’s leadership includes some well-known names from the Indian business community. The management team has decades of experience in both the financial services sector and the two-wheeler industry.

6. Digital Initiatives:

• To stay competitive and cater to the evolving needs of customers, Hero FinCorp has been focusing on digitalizing its services. This involves everything from online loan applications to digital payment solutions.

7. Recent Developments:

• In recent years, the company has made efforts to diversify its product portfolio and expand its customer base. It’s been tapping into underserved markets and introducing innovative financial products tailored to the needs of different customer segments.

Hero Fincorp Unlisted Share Price

Hero Fincorp Investment Thesis

1. Parent Company Advantage: Being part of the Hero Group, which is a market leader in the two-wheeler segment in India, provides Hero FinCorp with strong brand recognition and a wide customer base for its retail financing products.
2. Diverse Product Portfolio: Hero FinCorp has diversified its lending portfolio across retail, SME, and commercial segments, reducing reliance on any single source of revenue.
3. Extensive Geographical Reach: With its wide network across India, Hero FinCorp has the ability to tap into various demographic segments and regions.
4. Digital Initiatives: The company’s focus on digital transformation could be a growth catalyst, especially in a market where digital lending is gaining prominence.
5. Asset Quality and Risk Management: Investors would look at the company’s track record in terms of non-performing assets (NPAs) and the measures in place for risk management. A lower NPA ratio suggests better credit risk management.
6. Regulatory Environment: The NBFC sector in India has been under regulatory scrutiny, especially after certain crises in the past few years. Hero FinCorp’s compliance with regulatory requirements and its adaptability to changing regulations would be crucial.
7. Growth Potential in India’s Finance Market: The Indian finance market, especially in the two-wheeler and SME segments, has a lot of untapped potential. As urbanization and income levels rise, more consumers might seek financing options for vehicles and personal use.
8. Macro-Economic Factors: Economic growth, interest rate scenarios, inflation rates, and other macro-economic indicators can influence Hero FinCorp’s profitability and growth.
9. Management and Governance: The quality of the management team, their vision, execution capabilities, and governance practices are critical factors to consider.
10. Financial Health: Assessing the company’s balance sheet, profitability, liquidity, and other financial metrics would give investors a clearer picture of its financial health.
11. Valuations: Comparing Hero FinCorp’s valuation metrics to industry peers and its historical averages can provide insights into whether the company is undervalued or overvalued.

Business Segments:

1. Retail Financing:
   • Two-Wheeler Financing: This is one of the flagship offerings of Hero FinCorp, given its affiliation with Hero MotoCorp, a leading two-wheeler manufacturer in India. The company provides loans to customers for the purchase of motorcycles and scooters.
   • Consumer Durable Loans: Hero FinCorp also provides loans for the purchase of consumer durable goods like electronics and appliances.
   • Personal Loans: These are unsecured loans provided to eligible customers based on their creditworthiness.
2. SME (Small and Medium Enterprises) Financing:
   • Working Capital Loans: These are short-term loans provided to businesses to manage their day-to-day operations.
   • Machinery Loans: Loans specifically aimed at financing the purchase or upgrade of machinery and equipment for businesses.
3. Commercial Financing:
   • Loans Against Property: This allows businesses to unlock the value of their property by taking a loan against it. Such loans are often used for business expansion or other significant expenditures.
4. Enterprise Financing:
   • Hero FinCorp might also offer tailored financing solutions for larger corporate entities, though this would need to be explored further.
5. Digital Platforms:
   • In response to the growing digital trends, Hero FinCorp has been focusing on enhancing its digital platforms, which not only streamline the lending process but also help in reaching a larger customer base.

Competitive Strength:

1. Parent Company’s Legacy: Hero FinCorp’s affiliation with Hero MotoCorp, one of India’s largest two-wheeler manufacturers, provides it with brand recognition, credibility, and a large potential customer base.
2. Diversified Product Portfolio: The company’s product offerings cater to a wide range of customers, from retail consumers seeking two-wheeler loans to businesses requiring working capital.
3. Extensive Distribution Network: Hero FinCorp’s wide network of branches across India ensures a significant reach, enabling it to cater to various demographic and geographic segments.
4. Customer-Centric Approach: By providing quick, transparent, and tailored financial solutions, the company can foster customer loyalty and attract new customers.
5. Strong Risk Management: Effective credit risk assessment and management mechanisms can lead to better asset quality and lower non-performing assets (NPAs).
6. Digital Initiatives: The emphasis on digital transformation allows Hero FinCorp to offer streamlined and efficient services, reducing costs, and enhancing customer experience.
7. Experienced Management Team: Being part of the Hero Group, the company benefits from a management team with a deep understanding of both the financial services sector and the two-wheeler industry.
8. Regulatory Compliance: Maintaining a strong record of regulatory compliance ensures the company avoids potential financial penalties and preserves its reputation.
9. Healthy Financial Position: A robust balance sheet, with healthy capital adequacy ratios and liquidity positions, provides a competitive edge, especially in challenging economic conditions.
10. Strategic Partnerships and Alliances: Over the years, Hero FinCorp might have entered into partnerships that augment its offerings or enhance its reach.
11. Innovation: Offering innovative financial products and services, or introducing new technologies, can provide an edge in a competitive market.
12. Focus on Rural and Semi-Urban Markets: Given the significant potential in these segments, Hero FinCorp’s focus on rural and semi-urban areas can be a notable strength.

Peer Comparison:

Since the NBFC business is competitive, there are established competitors with high market share. Here is a list of a few of the significant peers:

1. Tata Capital Financial Services Limited.
2. Aditya Birla Finance Limited.
3. Adani Capital Private Limited.
4. Cholamandalam Investment & Finance Company Ltd.

Return on Equity %

Gross NPA %

Capital Adequacy Ratio %

Cost to Income Ratio %

Return On Asset %

Valuations:

• Price-to-Earnings (P/E) Ratio: This compares a company’s stock price to its earnings per share (EPS). It tells investors how much they are paying for a rupee of the company’s earnings.
• Price-to-Book (P/B) Ratio: Compares a company’s stock price to its book value per share, reflecting the value placed by the market on the company’s net assets.
• Discounted Cash Flow (DCF) Analysis: Estimates the company’s future cash flows and discounts them to present value using a discount rate (often the weighted average cost of capital or WACC). It provides an intrinsic value of the company.
• Return on Equity (ROE): Measures the return on shareholder’s equity and gives an idea of how effectively the company’s management is using shareholders’ funds.
• Enterprise Value to EBITDA (EV/EBITDA): Compares the enterprise value (market cap + debt – cash) to earnings before interest, tax, depreciation, and amortization. This can be particularly useful for companies with significant debt.
• Net Interest Margin (NIM): Especially important for NBFCs and banks, NIM measures the difference between the interest income generated and the amount of interest paid out, relative to the amount of interest-earning assets.
• Relative Valuation (Peer Comparison): This involves comparing the company’s valuation metrics to those of other companies in the same sector or industry.
• Asset Quality Metrics: Given the lending nature of NBFCs, metrics like Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios can influence valuations.
• Capital Adequacy Ratio (CAR): Indicates the financial strength and stability of an NBFC, impacting its valuation.
• Dividend Discount Model (DDM): Used for companies that pay regular dividends. It’s like the DCF but focuses on dividends.