Adar Poonawalla is the man of the moment without doubt and has started 2021 with a bang.
His firm Serum Institute of India, the worlds biggest vaccine maker, has been at the forefront of the nations fightback against the global pandemic by manufacturing crores of doses of Covishield, the coronavirus vaccine developed by Astra Zeneca plc and the Oxford University.
And now the billionaire businessman has sealed a big-bang buyout in the shadow banking business just when the sector is emerging from the pangs of a pandemic-induced lockdown.
On February 10, Rising Sun Holdings Private Limited, a company controlled in a personal capacity by Poonawalla, announced the acquisition of a controlling stake in NBFC Magma Fincorp for around Rs 3,450 crore, and the markets have given a thumbs-up to the deal. The newly combined entity will be called Poonawalla Finance.
So why did he take the plunge now? What made Magma Fincorp attractive as a target and what are the key synergies between the two parties? Does he have aspirations for a lucrative banking licence?
Moneycontrols Ashwin Mohan caught up with Adar Poonawalla for a quick, exclusive chat on these aspects of the deal and much more..
Excerpts:
The Poonawalla family is the worlds largest vaccine maker and the group also runs a small NBFC arm Poonawalla Finance which began operations in April 2019 and closed fiscal 2020 with a loan book of Rs 1,500 crore. What prompted the move to bolster your lending business further with the acquisition of a controlling stake in Magma FinCorp and should this be read as a major diversification by the group?
There is a huge void that exists today due to two main factors – certain NBFCs not being able to lend and having had to close down. Now, with the vaccines being available there is resurging confidence and demand across businesses, finances, personal loans, and spending. Leading to India’s growth story in double digits as the economy advances further. Not just for the short term but we believe India will continue to grow and there will always be more demand than supply in the financial sector. So, we believe this is the right time for us to get into this. That said, in the last two years, we have observed many NBFCs and banks and learnt a few lessons regarding financial services. Now we want to make a substantial commitment to go ahead and enter this space in a bigger way.
What are the key reasons that you picked Magma FinCorp for infusion of equity and what are the synergies that you see in both the NBFC businesses?
The reason we choose Magma Fincorp is because they also operate in the space that we have always identified – which is up to 50 lakh loans and not higher tickets to real estate and corporates and so many other areas; where other NBFCs have seen a lot of stress to say the least. Another aspect that attracted us to Magma Fincorp was the fact that they also have a housing finance and insurance business, so it’s a full package. Thirdly it is run by an excellent promoter who is more conservative in risk-taking which aligns with our line of thinking. Add to that, there aren’t many good NBFCs around that we could have looked at this stage.What part of the Rs 3,450-crore capital infusion via pref allotment has been set aside for investments in the housing finance subsidiary and general insurance joint venture and their growth?
Given the fact that the regulatory approvals for me to become a shareholder are still undergoing, it is inappropriate to answer this question. We can address this in a few months.
Would the newly beefed-up Poonawalla Finance be open to inducting an overseas partner in the general insurance joint venture now that Budget 2021 has hiked the FDI cap in the insurance sector from 49 percent to 74 percent?
Too soon to say or comment on this. There are many options available, but we can’t comment on this.
The NBFC segment was badly hit post the IL&FS crisis two years back and then the pandemic struck later denting business volumes. How do you read the situation on the ground in terms of asset quality and demand?
The NBFC segment was hit badly because of certain sectors and geographies. Fortunately for us, we are entering at a time where we know what those bad areas are and we can learn from these mistakes and be mindful. So, that’s what we hope to do and build a good asset quality in the face of unlimited demand. At the same time, make sure that we don’t go to stressful sectors and geographies.
Do you have aspirations of securing a banking licence once Poonawalla Finance reaches the desired scale and size?
I cannot comment at this stage.
The RBI has suggested a tougher regulatory framework for the (NBFC) sector in a recently released discussion paper to prevent recurrence of any systemic risk to the countrys financial system?
I have not looked into the details of the regulation that is being added by the RBI. However, being a conservative NBFC, if the regulation is adding discipline to our philosophy, we welcome that. I just hope and assume that the regulations which are put forth are logical and practical which does not hamper the ease of doing business. However, I would have to comment after I have looked at the new regulations in detail. But anything adding to discipline, being a conservatively run group and the NBFC that we want to run in a conservative sense at a decent rate of 20-25 percent growth; should be welcomed to help NBFCs stay disciplined to a certain extent.
Adar Poonawalla of Serum Institute of India speaks about his group’s NBFC interest, the rationale of the Magma Fincorp acquisition, RBI’s discussion paper for the segment and much more.
