Piramal enters affordable housing with ₹34,250 cr DHFL buy

In the first successful resolution under the IBC route in the financial services sector, Ajay Piramal's Piramal Enterprises has acquired Dewan Housing Finance (DHFL) for ₹34,250 crore.

The acquisition includes an upfront cash component of ₹14,700 crore and issuance of 10-year NCDs worth ₹19,550 crore. The Piramal Capital and Housing Finance Ltd. (PCHFL) will merge with DHFL, and the merged entity will be 100% owned by Piramal Enterprises Limited (PEL). In January, 94% of the creditors of DHFL had voted in favour of Piramal’s resolution plan. Most DHFL creditors will recover about 46% through successful completion of the resolution process, a ₹3,810 crore entitlement of creditors from the available cash balance on DHFL’s balance sheet. There were about 70,000 creditors of DHFL.

The acquisition will help the $1.7 billion-Piramal group create one of the leading HFCs in India focused on affordable housing, an area Piramal was not focused on until now. The deal will help to have a 43 times increase of customers from 23,286 to one million customers. Post-merger, presence in HFC is likely to be the second largest after HDFC (387), with 301 branches across 24 states and 2338 employees.

"This is a big acquisition for the group and will have a long-term significant impact on growth going forward", Ajay Piramal told Fortune India, while announcing the completion of the merger of DHFL at a press conference today. The acquisition accelerates Piramal’s plans to become a leading digitally oriented, diversified financial services conglomerate that focuses on serving the financial needs of the unserved and underserved customers of our country, he said.

In the last two years, Piramal Enterprises had raised over ₹18,000 crores of equity—mainly for financial services; to strengthen the balance sheet and to reduce debt-to-equity to create headroom for significant growth in the merged entity.

The acquisition is also a synergistic opportunity for Piramal to make a footing in the retail loan segment. PEL financial services loan book currently has a mix of 88% wholesale loans and with the DHFL acquisition, this will become nearly 50-50. The share of retail financing is likely to improve to 50% in the near term and 67% in the mid-to-long term, and growth in the retail loan book will facilitate capital efficiency in the financial services business. The acquisition will also help Piramal to enter services such as used cars and two-wheeler loans; education loans for vocational and online courses; small builder finance to meet construction finance requirements; unsecured business loans, personal loans and loans against securities.

According to Anand Piramal, executive director, Piramal Group, over the last two years, the Group has successfully built a next-gen technology platform, advanced analytics engine and AI/ML capabilities and the acquisition will help to implement these technologies across a much larger base of customers. "The newly merged entity is poised to be at the forefront of the digital-first retail lending market in India,” he said. Piramal’s ‘Digital at the Core’ tech platform will extensively leverage Artificial Intelligence and Machine Learning, including a new mobile app. Additionally, to maintain continuous innovation and improvement of its platform, Piramal has invested in a 10,000 sq. ft-Centre of Excellence for Technology, Engineering and Data Analytics centre in Bangalore.