The reported move by ICICI Bank to appoint bankers to explore the sale of its housing finance subsidiary, ICICI Home Finance, to private equity investors would not be a bad step. Currently ~95% of home loans are booked in the bank’s book and the ICICI Home Finance book now contributes only <10% of ICICI’s total mortgages vs ~20-25% in FY09/10.
The reported value of R4,400 crore sought for ICICI Home Finance would put relative valuations much higher than the 20-30% of AUM valuations for HFCs now and is about 2x the value we assign to ICICI Home Finance now.
ICICI Home Finance is a ~100% subsidiary of ICICI Bank primarily into mortgages. Between FY07-10, ICICI Home Finance constituted ~30% of the group’s mortgage disbursements. Since then, however, ICICI Home Finance’s share of the group’s housing disbursements has dropped to <10%.
ICICI Home Finance, over the past few years, has concentrated more on small-ticket loans in tier-2/3/4 towns, but given that a larger part of mortgages are now booked in the bank, growth for ICICI Home Finance has stagnated at a <10% CAGR over the past three years.
From an infrastructure perspective, ICICI Home Finance has its own distribution, but shares some of ICICI Bank’s Infrastructure as well.
A sale of ICICI Home Finance makes sense from a bank perspective as growth has stagnated in the HFC.