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Nirmal Jain , chairman, IIFL Holdings, tells Ashley Coutinho that his firm plans to raise more funds for its non-banking finance company (NBFC) business this financial year. Edited excerpts:
Canadian investor Prem Watsa has announced an open offer to buy out 26 per cent from public shareholders in IIFL via Fairfax India. Are you worried?
Let me clarify. The promoters are not offering any shares and are not diluting their stake. Prem Watsa and Fairfax are quality investors, with an impeccable track record of 30 years. Also, he (Watsa) is a long-term investor who raises money through share capital, not as a fund structure. So, he is not under pressure to redeem or return the money after a few years. Also, there is no question of any change in management; they (Fairfax and Watsa) have publicly stated as much. Even if their ownership surpasses that of the promoters, there is no intention to take management control. There are several listed firms where individuals hold a higher stake than the promoters but the latter are in control.
What, then, is the rationale behind the open offer?
They (Fairfax and Watsa) invested in IIFL four-five years ago. They are bullish on India right now. If India does well, the financial services space will do well, too. Within the space, they know us quite well. That's an added comfort and has led them to us.
With the market looking up, do you see the share of your broking revenues going up?
We primarily see ourselves as an NBFC company, with the segment contributing about 70 per cent to our top line. Wealth management is another significant piece, which contributes about 15 per cent. The broking business contributes only six-seven per cent to our revenues. Even if the market goes up, the contribution of the broking business is unlikely to rise much, one-two per cent at the most. This is because a significant amount of capital is deployed in our NBFC business.
What are your plans for the NBFC business?
We are planning to raise more funds for this financial year. A rebalancing of the loan book is also on the cards. Our home loan portfolio will become more prominent, while that of gold loans will decline. The gold loan book might come down to about 20 per cent from the existing 24 per cent in 18-24 months. On the other hand, the home loan book might increase to 40 per cent and that of commercial vehicles to 20 per cent from the existing eight-nine per cent. That is the broad plan.
Do you see a future in the AIF (alternative investment funds) space?
AIF is a big growth area for us. It's a space where large investors and high net worth individuals can invest. I think foreigners will be allowed to invest too. We have raised Rs 2,000-3,000 crore of funds in this space and are looking at growing aggressively.
What, according to you, would be the key differentiators for IIFL?
One thing that differentiates us is the quality of people. Our team has several individuals with over 15 years of experience in big brokerages, NBFCs and foreign banks. In all our businesses, we have given significant equity to people and a fair bit of autonomy to run them. They get rewarded by equity, not by revenue. This helps them look at the business from a long-term perspective. We have a fairly diversified, de-risked business model, so we aren't really dependent on one business or vertical. Also, we built our distribution earlier than competitors and have a presence in 1,100 locations.
Have retail investors come back to the market?
Retail investors are coming through the mutual fund route, not directly. But even in the mutual fund space, the participation is not as high as it should be. One reason is the lack of adequate incentive to distributors, whose numbers have declined considerably.
With the economy expected to recover in the second half, which sectors are you betting on?
Growth is coming back, but slowly. I expect earnings momentum to pick up from the December quarter. As the economy starts improving, companies connected with power, transmission and roads will start doing well. This includes sectors such as industrials, capital goods and cyclicals. Capital will start flowing in the infrastructure space. Firms that are well-managed and well-funded will grow but those with high debt might take a lot more time to recover. Valuations of some public sector banks appear attractive, too.
