Hyderabad-based Non-Banking Financial Company (NBFC) IKF Finance is in advanced negotiations to raise $70-80 million in new primary equity, with a sovereign wealth fund expected to lead the funding round. Norwest Venture Partners is also likely to participate, according to sources who spoke to Money control. The deal, which includes both a primary capital infusion and a secondary stake sale, is nearing completion, with IKF Finance awaiting approval from the Reserve Bank of India (RBI), one of the sources confirmed.

"The deal is closed, and the company has sought approval from the Reserve Bank of India (RBI) as the lead investor is acquiring more than a 26% stake," one of the sources revealed. "Some existing investors may also sell partial stakes as part of the transaction." Under RBI regulations, any change in NBFC shareholding exceeding 26% requires the regulator's approval.

While the primary capital infusion is expected to be between $70-80 million, sources indicate the total transaction, including secondary stake sales, will be significantly larger, positioning IKF Finance for its next growth phase. The Motilal Oswal Alternatives (MOA) and Accion-backed NBFC recently amended its Memorandum and Articles of Association to increase its authorized share capital, a move believed to be tied to the company's fundraising efforts.

Filings reviewed by Money control indicate that the increase in IKF Finance’s share capital is being carried out "in anticipation of the proposed primary investment from prospective investors." Money control has reached out to both IKF Finance and Norwest Venture Partners for comments but has yet to receive a response.

This fundraising round is set to be one of IKF Finance’s largest. In earlier rounds, the company raised Rs 120 crore from Teachers Insurance and Annuity Association of America (TIAA) in 2024, and Rs 255 crore from Accion and high-net-worth individuals (HNIs).

IKF Finance has a significant focus on Andhra Pradesh and Telangana, which together make up nearly 70% of its assets under management (AUM). However, the company has been expanding its reach beyond these core markets. In FY24, it entered Odisha, bringing its presence to nine states, including Gujarat, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, and Rajasthan. The company also grew its branch network, increasing the number of branches from 134 to 165 in FY24, and expanding to 179 branches by September 2024, according to Care Ratings data.

Inside IKF Finance: IKF Finance, founded as IndraKeela Financiers by VGK Prasad, boasts a track record of over 30 years. Leadership passed to Prasad's elder daughter, K Vasumathi Devi, in 2007, who became managing director in 2022. His younger daughter, Vasantha, heads IKF Home Finance. The company became a closely held public entity in 1994 and was listed in 1995, but delisted in 2015. As of September 2024, promoters hold 42.84%, Motilal Oswal Private Equity and Accion Digital Transformation Fund own 29.72%, and TIAA holds 7.96%, with the rest shared among other investors.

Cashing the vehicle finance and SME wave: IKF Finance operates primarily in two key segments: used vehicle financing (commercial vehicles, construction equipment, and three- and four-wheelers) making up 78% of its assets under management (AUM), and high-ticket SME lending, including loans to other NBFCs. Its housing finance subsidiary provides home loans and loans against property (LAP).

Over the last three years, IKF Finance's AUM has grown at a 39% compound annual growth rate (CAGR), rising from Rs 1,777 crore in March 2021 to Rs 4,811 crore in March 2024, and reaching Rs 5,386 crore by September 2024. In FY24, the company disbursed Rs 3,145 crore in loans, up 53% from the previous year, and posted a profit after tax (PAT) of Rs 102 crore, a 64% increase year-on-year. However, rising funding costs (9.48% in FY24) and higher write-offs of Rs 10.41 crore are putting pressure on margins. As of September 2024, gross NPA stood at 2.25%, with a net NPA of 1.75%.

In the broader NBFC sector, investor interest remains strong, with several large funding rounds taking place in FY25. Jaipur-based Finova Capital raised $135 million, Mintifi secured $180 million, and SarvaGram raised $68 million in Series D. FlexiLoans also raised $34.5 million. Additionally, Aye Finance is preparing for an Rs 1,450 crore IPO.