The ten-year-old company is negotiating a new funding deal with existing investor Fullerton Financial Holdings (FFH), a wholly owned subsidiary of Temasek, at a valuation of $100 million, down from $350 million it commanded during its last equity fundraise four years ago, one of the persons privy to the details told ET.
FFH owns around 38% stake in Lendingkart, as per data from Tracxn, and has infused Rs 722 crore into the company over the past five years, public filings showed.
“Fullerton is now looking at taking its stake up to more than 60% in the company and become a majority shareholder ,” said another person privy to the deal talks.
“There were discussions of a funding round a year ago, but those fell through due to a valuation mismatch. That time, Lendingkart’s financial numbers were looking good on the back of a strong comeback post Covid,” the person added. Subsequently, the company picked up $10 million in external commercial borrowing from BlueOrchard Fund.
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Lendingkart was among the new-age lending platforms that made a turnaround in the financial year ending March 31, 2023 after the pandemic severely dented their business. It swung to a profit of Rs 119 crore in FY23 against a loss of Rs 203 crore in the previous year. It closed FY24 with a small profit of Rs 3 crore at the group level.
Lendingkart Finance is wholly owned by Lendingkart Technologies, which is the group entity.
ET’s query to Lendingkart and FFH remained unanswered till press time Wednesday.
Also Read | Consumer-lending fintechs report surging numbers in FY24; slowdown emerging in current fiscal
Fullerton takes control
Fullerton chief executive officer Yeo Hong Ping and chief operating officer Anindo Mukherjee are on the Lendingkart Finance board.
The lending firm reported a 46% on-year growth in its assets under management to Rs 7,254 crore, which was primarily driven by co-lending arrangements with other entities.
According to a credit note released by rating agency Icra on July 16, its off-book share of the assets under management (AUM) stood at 70% as of March 2024, compared to 39% two years earlier, showing a slant towards partner books.
For context, Indifi Capital saw its share of on-book lending actually grow till September 2023 to 56% of its AUM. As per RBI norms, fintechs can enter into co-lending arrangements with larger lenders with 80% of the loan being booked in the partner’s book and 20% being booked in the fintech’s book.
“LFL has co-lending arrangements with 25 lenders (banks and NBFCs), with the co-lenders’ share ranging from 70-100%,” the note observed.
This has impacted the company’s revenue lines, restricting it to commissions or small part of the interest payments, unlike on-book loans where fat interest margins add to the topline.
Its total income went up to Rs 1,146 crore in FY24 compared to Rs 824 crore a year prior in its core lending business, but its net profit declined to Rs 60 crore from Rs 116 crore in the same period. At the consolidated level, the net profit fell to Rs 3 crore.
The business was directly impacted by Reserve Bank of India’s norms around first loss default guarantee, which eroded Lendingkart’s capital position.
Its gross NPAs, or loans that have not been repaid on time, stood at 6.6% of its AUM as of FY2024. Its credit costs increased to 3.5% of its managed assets in FY 24 compared to 2.3% in the previous year.
“The gross bad loans have shot up to almost around 10-11% which has further impacted its ability to attract new investors,” said an investor who has evaluated this sector closely.
Need for fuel
“Considering LFL’s moderate capitalisation, Icra expects it to raise equity capital in the near term, including participation from existing shareholders. Inability to raise equity capital or a delay in the same would be a negative monitorables,” the rating agency said in its July report.
An industry executive quoted above said Lendingkart focused on the co-lending business at a time when traditional credit businesses are getting investor attention. Case in point is the public listing of Northern Arc Capital, which listed at a 33% premium above its IPO price.
“Investors are looking for traditional lending businesses which are using technology to reduce cost of operations and investing in collection capabilities, Lendingkart’s reliance on partner lenders might be hurting them in this case,” said an investor who has evaluated this sector closely.
Another investor in a major fintech lending firm said private equity investors prefer companies which have a strong track record and have shown a turnaround in the core lending business post Covid. While Lendingkart did show a turnaround in fiscal 2023, the sump in 2024 has not gone in its favour, the person said.
The distress situation at Lendingkart comes amid a bunch of small business-focused fintech lenders managing to raise equity funding from global investors.
Flexiloans secured $35 million in fresh equity from global investors, while Aye Finance scooped up around $30 million led by ABC Impact, a Singapore-based impact fund and plans to go public. Gurgaon-headquartered lending firm Indifi raised $35 million from ICICI Venture and its existing investors last year.
As per Tracxn, fintech funding crashed to around $2 billion in 2023 from $5.4 billion in 2022.
