Monday, November 16, 2009

HDFC Credila: Deal Analysis

HDFC has acquired 41% in education loan provider - Credila Financial Services from DSP Merrill Lynch for $2.2 Mn. The transaction values the Mumbai based company at $ 5 Mn.


Promoters - Anil Bohora and Ajay Bohora hold the remaining 59% in the company.

The deal marks HDFC's entry into Rs 30,000 Cr education loan market, which is expanding at 30% per annum. At present, HDFC Ltd offers very specialized education loan to students in select institutions like ISB, Hyderabad, IIM Ahmedabad and Symbiosis, Pune.

Formed in 2007, Credila has disbursed loan of Rs 16 cr in 2008-09. It currently has offices in Pune, Bangalore, Hyderabad, Chennai, Delhi and Nashik.

Unlike bank education loans, Credila’s loans are all secured. The company insists on one or more creditworthy co-borrowers for all disbursals. It has also entered into agreement with a students tracking agency abroad.

Before founding Credila, the Bohoras founded a healthcare claims processing company called ClaimsBPO in January 1997 with a US joint venture partner. In 2003, ClaimsBPO was sold to WNS Global Services, a Warburg Pincus-owned company, listed on NYSE.

The promoters are both engineers who have relocated from executive positions in the US. Ajay was earlier with MetLife in its New York office, while Anil had worked in senior positions in AOL Time Warner and Pitney Bowles.

The Education loan space have seen good credit growth in the recent past. Most of the players have reported over 25% growth in the student loan portfolio.

Union Bank of India reported 40% growth for the quarter, while Bank of India and Bank of Baroda reported 24% and 29% growth respectively in their education loan porfolio.


Here's My Analysis

1. Provides HDFC with an excellent platform for expanding into education loans.
2. Enters a high growth market: HDFC needs to create more growth engines to keep its growth momentum
3. Buy vs build approach gives them quicket acess to market. Credila's conservative approach (all loans are secured) to lending, gels well with that of HDFC's
4. Backing a winning team with their skin still in the game.


End Game
Behoras are serial entrepreneurs and would probably be bought out by HDFC over the next couple of years. HDFCs huge reach and brand would give them the leverage to expand, create value and exit.

6 comments:

Goldman Sachs said...

This is one of the best analysis we have seen about HDFC's entry in the field of Education Loan with the recent acquisition. The author of this note has done an outstanding work which the stock analysts like us can use for our decision making: Stock Analyst based in New York

RW said...

Thanks! Am glad this was useful

Anonymous said...

Sorry for my bad english. Thank you so much for your good post. Your post helped me in my college assignment, If you can provide me more details please email me.

RW said...

Happy to help again!
You have not left your email. Also, let me know what particular information you are looking for!

way2 college said...

Due to the bad economic condition, many students quit there study. But for them the Credila education loan is the best. As, this gives them money on low interest. Thanks for sharing this valuable information.

Nathan leo said...
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