Piramal pays consideration for acquisition and merger of

Piramal pays consideration for acquisition and merger of
Dewan Housing Finance (DHFL)

 

Transaction highlights

·         The first successful resolution under the IBC route in the financial services sector and amongst the largest resolutions in value terms

·         Total consideration of ~INR 34,250 Crores paid for the completion of the acquisition

·         94% of the creditors had voted in favor of Piramal’s resolution plan

·         Approvals obtained from Reserve Bank of India (RBI), Competition Commission of India (CCI) and National Company Law Tribunal (NCLT)

·         Piramal Capital and Housing Finance Ltd. (PCHFL) to merge with DHFL. Resultant entity to be named as PCHFL.

·         Most of the DHFL creditors are recovering nearly 46% through successful completion of the resolution process

 

Creates one of the leading Housing Finance Companies in India, focused on affordable financing

·         Access to over ~1 million lifetime customers

·         Presence across 24 states with a network of 301 branches and 2,338 employees

·         India-wide platform to address diverse financing needs of the under-served ‘Bharat’ market

·         Significantly diversifies the loan book towards retail financing – Nearly 50:50 retail wholesale mix in the near-term

·         Acquisition will scale up our retail loan book to ~5 times

·         Reduces the average borrowing cost and further improves the Asset Liability profile of our Financial Services business

Acquisition is in line with a strategic roadmap to transform our financial services business, over the last two years

·         Raised ~INR 18,000 Crores of equity - strengthened the balance sheet to take advantage of such large opportunities

·         Significantly reduced debt-to-equity – creating a headroom for significant growth in the merged entity

Piramal Enterprises Limited (‘PEL’, NSE: PEL, BSE: 500302) today announced the payment of consideration for the acquisition of Dewan Housing Finance Corporation Ltd. (DHFL), marking the first successful resolution under the IBC route in the financial services sector.  In value terms, the transaction is among the largest resolutions till date, setting the precedent for future resolutions in the sector.

Speaking on the occasion, Ajay Piramal, Chairman, Piramal Group said, “We are very pleased to announce the consideration payment made towards the completion of this exciting acquisition. This accelerates our plans to become a leading digitally oriented, diversified financial services conglomerate that focuses on serving the financial needs of the unserved and underserved customers of our country.

An important characteristic of any advanced economy is a robust insolvency code. The landmark bankruptcy reforms have made it possible to solve complex resolutions like this in a more complete and timely way.’

 

Anand Piramal, Executive Director, Piramal Group said, “The combined entity will have 301 branches, 2,338 employees and over 1 million lifetime customers. We will be a dominant player in the fast-growing affordable housing segment. Over the last two years we have successfully built our next-gen technology platform, advanced analytics engine and AI/ML capabilities. This acquisition allows us to implement these technologies across a much larger base of customers. The new merged entity is poised to be at the forefront of the digital-first retail lending market in India.”

 Transaction Synergies

The merged entity combines Piramal’s financial strength, core values and institutional credibility with DHFL’s geographic footprint and distribution network of 301 branches and 2,338 employees catering to ~1 million lifetime customers across 24 states - making it one of the leading housing finance companies in the country.

It creates an India-wide platform focused on the affordable segment (with average loan ticket size of nearly INR 17 Lacs) to address the diverse financing needs of the under-served and unserved ‘Bharat’ market – that represents Indian budget conscious customers at the periphery of metros and in Tier I, II and III cities.

Over the last two years, Piramal Enterprises strengthened its balance sheet to take advantage of such large opportunities by raising ~INR 18,000 Crores of equity. It reduced net debt-to-equity and shifted towards long-term borrowings, thereby creating a headroom for significant growth in the merged entity. The acquisition is a major step under the execution of a strategic roadmap to transform our financial services business.

 

This transaction will not only grow the retail loan book to ~5 times, but also lead to a significant diversification of the overall loan book. This paves the way for achieving nearly 50:50 retail wholesale mix in the near-term.  The company will leverage the “phygital” lending platform driven by Machine Learning (ML) and Artificial Intelligence (AI), including the new mobile app.

In addition, the transaction will lead to a reduction in weighted average borrowing cost by nearly ~130 basis points and should further improves the Asset Liability Management (ALM) profile of our Financial Services business. The transaction will also significantly improve the utilization of equity in our Financial Services business, with net debt-to-equity of the Financial Services business getting efficient from 1.6x as of Jun-2021 to 3.5x in the near term.

Parameters	What changes?
No. of Customers	43 times increase from 23,286 to ~1 million in the number of lifetime customers
No. of States	2.4 times increase in presence from 10 to 24 states
No. of Cities / Towns	6 times increase in presence from 40 to 236 cities and towns
Branches	22 times increase in the number for branches from 14 to 301
Scale	~5 times increase in the size of retail AUM
Diversification	From largely wholesale led to 50:50 retail wholesale mix in the near term