Hero FinCorp, the financial services arm of the Hero Group, is preparing for its much-anticipated IPO. With SEBI’s approval secured on 22 May 2025, the company is now set to raise INR 3,408 crore, comprising a revised fresh issue of INR 1,840 crore and an offer for sale (OFS) of INR 1,568 crore.

This revision follows a pre-IPO placement round completed on 16 June 2025, where the company raised INR 260 crore by issuing 18.57 lakh shares at INR 1,400 per share to 12 investors. Notable participants included Shahi Exports (INR 69 crore), RVG Jatropha Plantation (INR 50 crore), and others. This INR 1,400 price now effectively anchors market expectations and serves as a benchmark valuation as the company enters the public domain.

Hero FinCorp’s IPO will not only be a litmus test of investor appetite for NBFCs, but also a valuation benchmark in India’s post-pandemic lending ecosystem. With a diversified lending model and ambitions for scale, it arrives at a time when public markets are cautious yet optimistic.

As investors weigh their options, one question dominates: Is Hero FinCorp IPO fairly valued — or overpriced — at its implied pre-IPO valuation of INR 1,400 per share?

This article dives deep into the company’s financials, strategy, macro context, peer metrics, and risk-adjusted valuation to arrive at a reasoned and balanced conclusion.

Business Model Deep Dive

Hero FinCorp operates across multiple high-growth lending segments that reflect a diversified credit book:

• Two-Wheeler and Used Car Loans: This is a core strength aligned with Hero MotoCorp’s retail dominance.
• Personal Loans and Loyalty Loans: Targeting salaried and self-employed customers, including those in Tier-II/III towns.
• Loan Against Property (LAP), Business Loans: A growing book in secured lending for MSMEs.
• SME Lending, Supply Chain Finance: Captures working capital needs of India’s unorganized sector.

With a presence in 2,200+ cities and over 4,500 touchpoints, Hero FinCorp boasts a disbursement capacity of 3,500 applications/day, serving over 8 million customers as of FY24. It benefits from a synergistic relationship with Hero MotoCorp and an expanding digital origination channel.

Its wholly owned subsidiary, Hero Housing Finance, allows the company to cater to the affordable housing segment, particularly through PMAY-linked loans and salaried class borrowers with steady incomes.

Hero Fincorp IPO Structure and Use of Proceeds

• Fresh Issue: INR 2,100 crore — to strengthen capital base for future lending, boost Tier-I capital, and meet regulatory adequacy norms.
• Offer for Sale: INR 1,568 crore — a partial exit for private equity investors including Apis Growth II, AHVF II Holdings, Otter Ltd, and others who participated in pre-IPO rounds.

Notably, the IPO proceeds will not be used for loan book expansion directly or inorganic acquisition. This suggests a defensive capital replenishment approach, aimed at reducing leverage pressure and supporting long-term growth.

Financial Overview: Growth Meets Margin Pressure

The trend reveals that FY25 saw a sharp decline in net profit and margins after a blockbuster FY24. This volatility in earnings warrants deeper scrutiny. Debt levels remain high, leading to elevated interest costs and diluted shareholder returns.

Hero Fincorp IPO Valuation Analysis: Does INR 1,400 Make Sense?

At INR 1,400/share and ~12.73 crore outstanding shares, Hero FinCorp commands a market cap of ~INR 17,822 crore. The implied multiples are concerning when placed against its cyclical earnings and peer benchmarks.

P/E Valuation

• Using FY25 EPS of INR 8.62: P/E = ~162x, an unsustainable valuation for a sub-2% RoE NBFC.
• Using FY24 EPS of INR 49.94: P/E = ~28x, still aggressive unless earnings normalize quickly.

Peer Comparison

Verdict: Hero FinCorp IPO valuation looks excessively priced, particularly given its inconsistent margins and moderate return ratios.

Valuation Sensitivity Table

This table illustrates the Price-to-Earnings (P/E) multiples at different share prices, using both FY25 (INR 8.62) and FY24 (INR 49.94) EPS figures:

📊 Interpretation: At INR 1,400, investors are paying 162 times FY25 earnings, which is steep even by premium NBFC standards.

🧮 Fair Valuation Estimate: What Should Hero FinCorp Be Worth?

We determine a justified fair price by triangulating three key valuation methods:

1. Peer-Based P/E Valuation

Assuming realistic P/E multiples drawn from peers like Cholamandalam (16.9x) and Shriram Finance (14.8x):

🧾 Note: Even with a 20x P/E — a premium multiple — fair value caps around INR 172.

2. Price-to-Book Value (P/BV) Valuation

Using FY25 Book Value per Share of INR 451.52 and peer average P/B multiple of 3.10x:

• Fair Value = INR 451.52 × 3.10 = INR 1,400
• This aligns almost exactly with the current pre-IPO price.

📌 P/B-based valuation implies that Hero FinCorp’s price is close to fair, only if future profitability and return ratios improve to match peers.

3. Simplified DCF-Based Intrinsic Value (Assumptive)

Assumptions:

• Net Profit CAGR: 15% over 3–5 years
• Cost of Equity: 13.5%
• Terminal Growth Rate: 4%

👉 Intrinsic Value Estimate: INR 1,050 – INR 1,200 per share
(Base case assuming profitability recovers to FY24 levels over 2–3 years)

🎯 Fair Value Range: INR 1,000 – 1,250

🔍 Conclusion:
The P/E-based fair value appears very low due to depressed FY25 earnings.
The P/B-based fair value justifies the INR 1,400 price only if profitability rebounds.
DCF suggests the intrinsic value lies between INR 1,000 and INR 1,250, implying limited upside at INR 1,400.

Peer Valuation History & Sector Context

• Bajaj Finance: Averaged 33.6x P/E over 3 years with consistent growth, low NPAs, and a strong consumer brand.
• Chola: Steady 16.9x valuation due to healthy asset quality and deep southern India penetration.
• Shriram: Valued lower due to focus on used vehicle financing but delivers superior ROE with controlled credit costs.

Hero FinCorp has yet to build similar moats in asset quality, geographic concentration, or profitability.

Strategic & Promoter Dynamics

• Private equity investors exiting at INR 1,400/share suggests they are booking gains after a growth cycle.
• Promoter holding of 79.54% post-IPO ensures strategic control but limits free float and liquidity.
• Upcoming management transition and senior resignations could create some execution risks in H1 FY26.

Risks & Red Flags

Conclusion

Recommendation: WAIT & WATCH.

• Unless the IPO is priced below INR 1,200, current valuation offers limited risk-reward appeal.
• Post-listing, reassess after 2 quarters of earnings for better clarity.
• Investors should track RoA trajectory, NIM evolution, and any change in cost of funds post IPO.