Hero FinCorp Deep Dive: High Debt, Low Profit—Is the IPO Worth It?
04 Jul, 2025
A) Business Model of the Company
Type: NBFC (Non-Banking Financial Company)
Founded: 1991 as Hero Honda FinLease Ltd, rebranded in 2015
Parent: Hero MotoCorp Ltd
Primary Segments:
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Retail Lending (65.08% of AUM): Two-wheeler loans, personal loans, mortgage loans.
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MSME Lending (20.80% of AUM): Working capital, small business finance.
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Corporate & Institutional Finance (CIF): Structured finance, large ticket lending.
Promoters:
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Majority Stakeholder: Hero MotoCorp Ltd (41.15%)
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Other Key Promoters:
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Bahadur Chand Investments (20.23%)
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Brijmohan Lal Om Parkash (9.51%)
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Munjal family: Dr. Pawan Munjal, Renu Munjal, Renuka Munjal, Abhimanyu Munjal
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Hero MotoCorp’s involvement ensures strong governance and brand trust, while the Munjal family’s continued control retains strategic continuity.
Operational Metrics
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● Customer Base: 5 million retail, 29,060 MSMEs, 360 CIF borrowers.
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● Sourcing Mix: Direct sourcing (31.97%), digital partners (22.39%), two-wheeler dealers (21.20%), DSAs (18.48%).
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● Branch Distribution: 140 branches, with 86.43% in metro and urban centers.
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● Collection Infrastructure: 545 call centre executives, 1,357 in-house collection team members, 8,313 field agents.
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● Collection Method: Digital collections form 83.31% of total, showing strong digital integration.
B) How Hero FinCorp Makes Money
Hero FinCorp earns through interest income on loans and fees from services. Its income mix is primarily driven by:
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Interest from loans (Retail, MSME, CIF)
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Fees on processing, servicing, and penalties
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Investment income (from surplus capital)
Loan Portfolio
| Loan Type | FY24 AUM (₹ Cr) | FY23 AUM (₹ Cr) | FY22 AUM (₹ Cr) | Segment Contribution | Segment Secured Loans (%) |
|---|---|---|---|---|---|
| Total Loans | 51,487.10 | 41,497.30 | 32,950.80 | 100% | 59.95% |
| Vehicle Loans | 12,794.30 | 10,838.40 | 9,876.00 | 24.85% of Total | 100% (Retail) |
| Mortgage Loans | 4,998.90 | 3,697.00 | 2,722.30 | 9.71% of Total | 98.48% (Retail) |
| MSME Loans | 10,779.80 | 8,481.50 | 6,151.40 | 20.80% of AUM | 58.09% |
| CIF Loans | 7,314.70 | 7,037.20 | 6,934.60 | 14.12% of AUM | 94.15% |
C) Industry Analysis – Michael Porter’s 5 Forces
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Threat of New Entrants: Moderate – Due to regulatory compliance and need for capital.
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Bargaining Power of Customers: High – Customers have multiple NBFC/bank options.
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Bargaining Power of Suppliers: Medium – Mainly applies to capital providers.
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Threat of Substitutes: Medium – Rise of fintech lenders and digital-only NBFCs.
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Industry Rivalry: High – Competing with Bajaj Finance, Chola, Poonawalla, Sundaram, etc.
Additional Insights:
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Market Size: The Indian retail & MSME lending market is projected to surpass ₹60 lakh crore by FY30.
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Hero FinCorp’s Market Share: Estimated <1% of total NBFC loan book due to its focused product mix.
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Top Competitors’ Share:
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Bajaj Finance: ~7.5% of NBFC sector loan book.
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Cholamandalam Finance: ~2.5%
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Hero FinCorp: ~0.9%
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D) Last 3 Years Returns in Unlisted Market
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2022 Low: ₹780
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2023: ~₹1,050
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2024 Peak: ~₹2,200
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Current (June 2025): ₹1,595
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CAGR (approx.): ~24% over 3 years
E) IPO Expected Valuation & Peer Comparison
IPO Details:
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Size: ₹3,668 Cr (Fresh Issue ₹2,100 Cr + OFS ₹1,568 Cr)
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Valuation: ₹20,320 Cr (Unlisted Estimate)
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Expected Valuation at IPO: ~₹17,836 Cr (for price band ₹1300–1400)
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P/E: 184.82x (FY25 PAT ₹110 Cr)
Peer Benchmarking (FY25 Data):
| Company | Revenue (₹ Cr) | PAT (₹ Cr) | ROE | D/E Ratio | Market Cap (₹ Cr) | P/E | P/B |
| Hero FinCorp Limited | 9,903 | 110 | 1.91% | 8.33 | 20,320 | 184.2 | 3.52 |
| Bajaj Finance | 69,684 | 16,638 | 19.2% | 3.74 | 5,74,630 | 34.5 | 5.95 |
| Chola Investment | 25,846 | 4,263 | 19.7% | 7.4 | 1,28,832 | 30.2 | 5.49 |
| Poonawalla Fincorp | 4,190 | -98.3 | -1.2% | 3.19 | 36,383 | Loss | 4.44 |
| Sundaram Finance | 8,513 | 1,854 | 15.3% | 4.63 | 57,418 | 31 | 4.37 |
F) Financial Performance (FY25 vs. FY24)
| Metric (₹ Cr) | FY25 | FY24 | Change | Analysis |
| Interest Income | 8,589 | 7,479 | +15% | Loan book expansion. |
| Other Income | 1,314 | 880 | +49% | Fee income & recoveries. |
| Total Income | 9,903 | 8,359 | +18% | Healthy growth. |
| Interest Expenses | 3,827 | 3,097 | +24% | Rising borrowing costs. |
| Operating Expenses | 2,935 | 2,513 | +17% | Branch expansion. |
| Provisions | 2,884 | 1,722 | +67% | NPA coverage (Gross NPA: 5.05%). |
| PAT | 110 | 637 | -83% | Profit collapse due to provisions. |
| EPS (₹) | 8.63 | 50.16 | -82% | Severe dilution. |
G) Key Industry Trends
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Target Market: "Aspiring India" (₹2–10 lakh/year households), projected to grow from 103M (2022) to 181M (2030).
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MSME Credit Gap: ₹103 trillion (as of March 2024).
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Growth Drivers: Formalization of MSMEs, rising incomes, shift to digital lending.
H) Key Risks
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Asset Quality: Gross NPA at 5.05%, Net NPA at 2.3% (FY25).
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High Leverage: Debt-to-equity at 8.33x – well above peers.
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Profitability Concerns: PAT dropped 83% YoY due to heavy provisioning.
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Disclaimer: This is not investment advice. Readers must do their own due diligence or consult a financial advisor before making any investment decisions.
