Investment Firms Set to Inject Capital into Avanse Financial Services

Several investment firms, including Mubadala Investment Co. from Abu Dhabi, Kotak Pre-IPO Opportunities Fund, and Avendus Future Leaders Fund, are reportedly prepared to invest a combined ₹1,100 crore in Avanse Financial Services, a company backed by Warburg Pincus. This information was shared by individuals familiar with the developments.

The proposed deal would value the non-banking financial company (NBFC) at ₹8,000 crore, highlighting the growing interest from alternative asset managers in the education loan sector. Earlier this year, EQT (formerly Baring PE Asia-EQT) made a significant acquisition by purchasing the education loan arm of HDFC Ltd.

Avanse stands as the second-largest domestic private NBFC in the education loan segment. As of FY23, the company boasts assets under management (AUM) of ₹8,646 crore. They disbursed a total of ₹6,143 crore in the same year, reflecting a 2.1x increase compared to the previous financial year. Avanse has provided financial support to over 3.5 lakh students and 1,200 institutions.

Avanse Financial Services has a track record of assisting over 4 lakh students across more than 4,000 institutions offering over 30,000 courses in 50 different countries. Additionally, they have provided growth and working capital to 2,000 educational institutions within India.

The company intends to go public this year with the aim of raising around ₹4,000 crore. Discussions with investment bankers have already been initiated. If Avanse’s plans materialize, it could potentially mark the first-ever public listing of an education-focused NBFC in India.

In 2019, US private equity firm Warburg Pincus acquired an approximately 80% stake in Avanse Financial Services, which was previously the education finance arm of Wadhawan Global Capital. The remaining ownership is held by Kedaara Capital (12.4%) and the International Finance Corporation (IFC), an arm of the World Bank.

As of March 31, 2023, HDFC Credila held the leading position as an education loan provider with an AUM of ₹15,298 crore.

Representatives from Avanse and Avendus declined to comment on the matter. Warburg Pincus, Mubadala, and Kotak did not respond to inquiries.

Avanse Financial’s education loan portfolio stood at ₹6,068 crore on March 31, 2023, representing approximately 70% of its AUM. The company primarily extends loans for overseas studies in around 50 countries. The majority of these loans (52.7%) are for courses pursued in the US, followed by Canada (18.6%), the UK (17.5%), and a combined 5.6% for India and other countries.

On March 31, 2023, Education Institution Loans (EIL) constituted 17.5% of the portfolio. These loans are used to finance working capital and growth capital needs of educational institutions within India. The digital business segment, catering to upskilling and test preparation needs with an active customer base exceeding 150,000 students, accounts for 9% of the portfolio, according to a report by CARE Ratings.

The education financing sector witnessed significant growth in 2023. A CRIF report indicates that the student loan market reached a value of ₹1.36 lakh crore in March 2023, reflecting a 23% increase compared to the previous year. While public sector banks hold the majority share of such loans, the NBFC segment is gaining traction. As of March 2023, it held 18.39% of the market share compared to 12.60% in March 2022, representing an 80% year-on-year growth.

India boasts one of the largest higher education systems globally, with over 38 million students enrolled in courses offered by 50,000 institutions across more than 1,000 universities.

By 2025, there will be between 1.5 and 2 million Indian students studying overseas, according to a new report titled “Beyond Beds & Boundaries: Indian Student Mobility Report 2023”. The study also anticipates spending on overseas education to increase from an estimated $37 billion in 2019 to $70 billion by 2025.