L&T Finance Holdings is bolstering its mutual fund business with a second acquisition in two years. After acquiring DBS Cholamandalam Mutual Fund in January 2010, it is set to add Fidelity's Indian AMC (asset management company) to its fold. That the company is on a shopping spree is evidenced by its acquisition of Indo Pacific Housing Finance — a small housing finance company — earlier this month.
Significant synergies
The two recent acquisitions may put pressure on L&T Finance's near-term profitability as these are loss-making entities . But, over the long-term, these deals will provide significant synergies. The company currently has presence in retail (other than housing loans), corporate and infrastructure finance.
Acquisition of a housing finance company will mark its entry into mortgages and would help it leverage its branch network. Acquisition of Fidelity India AMC would enhance its equity mutual fund offerings.
The assets under management of L&T Mutual Fund was Rs 4,616 crore as of December 2011, of which, equity schemes accounted for only 5 per cent . On the other hand, more than two-thirds of the Rs 8,881-crore of Fidelity's assets under management are from equity schemes.
The funds for the Fidelity acquisition may come from its Initial Public Offer (IPO) proceeds.
As of December 2011, L&T Finance Holdings had Rs 325 crore of unutilised IPO funds . Diverting its IPO proceeds may impact the funding needs of its other subsidiaries, L&T Finance and L&T Infrastructure Finance, as the funds were meant for boosting their capital adequacy .
Over the next couple of years the company may have to raise more funds for capital infusion given the high growth in its loan book (51 per cent y-o-y as of December 2011).