Arpwood, Indostar vie for $400m Karvy NBFC

Mumbai: At least two bidders — Arpwood Capital, and Indostar Capital Finance (which is jointly owned by Everstone Capital and Goldman Sachs) — are in the fray to acquire the non-banking finance company (NBFC) Karvy Finance, people directly familiar with the matter said. Karvy Finance is a lender to micro, small and medium enterprises (MSMEs) with a loan book of $400 million, or Rs 2,500 crore.

Arpwood Capital, a private equity vehicle launched by ace investment banker Rajeev Gupta and his former colleague Amol Jain, is backed by Hong Kong-based PAG Capital, one of the largest Asian alternate asset managers, as it looks to ride on the fast growing mortgages market in the country. Indostar Capital, which provides loans to bigger companies, is hoping the deal would help in tapping the MSME loan segment.

Karvy Finance, with a network of 80 branches across 45 cities, also dabbles in small commercial vehicle loans and gold loans, adding a consumer angle to the portfolio. Karvy, an integrated financial services firm, has mandated investment bank MAPE Advisory for a possible divestment of the NBFC unit. Karvy Finance founder CEO Amit Saxena and senior management are likely to have their say in deciding on the eventual suitor.
Arpwood, Indostar and Karvy Finance declined to comment, when contacted.

MSMEs are the key drivers for Asia’s third largest and the world’s fastest-expanding economy. A Frost & Sullivan study in recent past showed that MSMEs accounted for 45% of the country’s manufacturing output and 40% of exports, providing livelihood for 60 crore people. Still, data showed that less than 10% of the smaller enterprises have access to financing from the banking system. It could propel a fivefold growth in this credit market for NBFCs to almost Rs 40,000 crore by the turn of the current decade. The management of Karvy Finance has been bullish on future upsides as they target a $2-billion loan book and expanding the branch network to over 250 in the near future.

In context, Karvy Group’s move to divest the unit looks surprising, though sources cited earlier in the report did not rule out the possibility of it creating a new NBFC platform to re-enter the small and micro credit market.