PE firm TA Associates lines up a unicorn bet in Vastu Housing Finance

The deal size will likely be about $400 million, with Vastu Housing Finance valued upwards of $1.4 billion, said one of three people with knowledge of the deal. Vastu Housing was valued at about $1.2 billion in February, according to market research firm Tracxn.

Some existing investors in the Mumbai-based housing finance company including Norwest Venture Partners, 360 One Asset Management, and Creation Investments India are also increasing their stake in Vastu through this transaction, said another person familiar with the development.

Multiples PE, which owns a majority stake in Vastu from an earlier fund, will sell stake in this investment round.

“The company has a big tech team and has developed its proprietary tech and IP," said one of the investors in the company, declining to be identified. “This is what sets it apart and where a lot of its value comes from."

Vastu Housing has also established a strong board with veteran independent directors such as former RBI deputy governor Shyamala Gopinath; Vishu Ramachandran, former senior banker with Standard Chartered Bank globally; Natrajan Ramakrishna, former head of audit at global consulting firm KPMG; and Rajsekhara Reddy, former chairman and managing director of Andhra Bank.

TA Associates, Multiples PE and Vastu Housing Finance did not respond to requests for comment. Creation, 360One declined to comment.

From seed to profits

The latest transaction involving Vastu Housing will be a mix of secondary and primary fundraises. The primary capital infusion was largely completed in March after International Finance Corporation invested about $75 million in Vastu Housing, according to a regulatory disclosure.

Multiples has been booking profits gradually since the time it first invested seed capital in the housing finance platform in 2015. Last year, Faering Capital also acquired some stake in Vastu Housing from Multiples PE for $30 million.

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“VHFCL has been maintaining comfortable capitalisation levels as it has raised equity capital in the initial stages of operations to support growth in the loan portfolio," rating agency Icra said in a credit rating report on Vastu Housing Finance on 4 January.

Vastu Housing Finance reported a net profit of ₹285 crore on a revenue of ₹768.5 crore for 2022-23, according to VCCEdge, the data platform owned by HT Media. For FY22, the company had reported a net profit of ₹181.7 crore on operational revenue of ₹522.6 crore.

Housing finance in vogue

Housing finance companies have in the news recently for their mega transactions. 

Aadhar Housing Finance went public this month with a ₹3,000-crore initial public offering, while Warburg Pincus picked up a majority stake in Shriram Housing Finance, also this month, in one of its largest investments in India.

Aadhar Housing, after a flat listing debut on 15 May, has gained more than 5% on NSE. 

As for Shriram Housing Finance, Warburg Pincus Llc struck its biggest deal in India, beating some of the world’s top private equity players, to win Shriram Group’s housing finance subsidiary for ₹4,630 crore, Mint reported on 13 May.

Also read | What's driving up housing prices in India? 

Vastu Housing, according to Icra, had raised equity capital of nearly ₹750 crore from Multiples Alternate Asset Management Pvt. Ltd. 

In 2021, Vastu raised fresh capital of ₹925 crore from a consortium of investors comprising Norwest Capital Llc, Creation Investments India IV Llc, and funds advised by IIFL India Private Equity Fund. Subsequently, Faering Capital also acquired a stake in Vastu last year.

Vastu Housing’s tangible net worth stood at ₹2,559 crore as on 30 September, according to Icra.

“The key focus segment of the company primarily consists of the lower and emerging middle-income groups, who are under- served by traditional financiers. Additionally, self-employed customers formed 81% of (assets under management) as on September 30,2023" Icra said about Vastu Housing.

“The customers in the target segment are relatively vulnerable to macro environment shocks and Vastu requires strong risk management process and underwriting skills to effectively contain the risk," Icra added. “The same is mitigated partly on account of the secured nature of lending."