Partners Group has completed its exit from Indian affordable housing finance business Aavas Financiers, having realised about INR 35bn (USD 407m) over seven years – while tracking the non-banking financial company (NBFC) segment’s graduation to the mainstream.

The final act, which saw Partners Group and Kedaara Capital sell a 26.47% stake to CVC Capital Partners for INR 34.25bn, has set up India’s largest-ever affordable housing finance investment.

CVC has also launched an open offer to assume control of the listed company, targeting an additional 26% interest for INR 36.64bn.

“The way we think about investing has always been very thematic, and we were at that point spending a lot of time around the affordable housing sector,” said Murali Nair, an India-based member of Partners Group’s private equity team.

“It’s been a fantastic journey. Ours was the first in line of several other PE-backed affordable housing companies that have come to market.”

Aavas, previously known as AU Housing Finance, was established in 2011 as the home loan business of NBFC AU Financiers, which became AU Small Finance Bank in 2017. It now operates through a retail network of 397 branches across 14 states in India. It reported assets under management (AUM) of INR 204bn and net profit of INR 5.74bn for FY25.

Partners Group and Kedaara acquired Aavas in 2016, paying INR 9.5bn for a 90.1% stake. By the time the company went public two years later, their shareholdings were 33.43% and 47.83%, respectively, with more than three-quarters of the INR 16.4bn in proceeds going to existing investors. Partners Group took INR 5bn off the table.

This was followed by several open market sales, including block deals executed in 2021 amounting to INR 15.89bn, according to filings. In the final exit to CVC, Partners Group sold a 10.87% stake worth INR 14.1bn.

Value proposition

The appreciation in value and shift from private to public ownership during the PE holding period coincided with over 12x in AUM growth, an 18x increase in net income, and a 7x expansion in the branch network, according to Partners Group.

“There were three distinct phases of value creation. The transition from the ownership under AU Financiers to PE, being able to build a strong foundation and put in the right systems and processes to accelerate growth, and lastly institutionalising the business to continue generating value for all the stakeholders,” Nair explained.

One of the most critical developments was a post-IPO digital transformation that helped optimise various operational metrics. For example, moving from paper-based lending to a digital platform-led sourcing and disbursements system and reduced turnaround time by one-third over the course of the investment.

Technology adoption efforts also included introducing third-party platforms like Salesforce and Oracle Flexcube to improve loan origination and management, customer experience, and back-office automation.

Progress in this area resulted in operating expenditure decreasing from 3.68% of revenues in FY23 to 3.58% in FY24, according to annual reports. Collections made through the customer app doubled in FY25.

“There is this entire informal income segment where they are under-banked or un-banked and they need somebody like Aavas to come in with a nuanced, on-the-ground presence who can visit these individuals, understand what the income sources are, and underwrite those incomes,” Nair said.

“A bank did not do this because these are small ticket sizes, and it involves a lot of specialised effort for underwriting on the ground.”

It marks Partners Group’s second exit in India alongside Kedaara in the space of seven months. Last December the two investors took all the proceeds in a USD 944m IPO for discount retailer Vishal Mega Mart. This was followed last month by a block trade that generated around USD 1.2bn.

Infinity and beyond

Partners Group established a Mumbai office in 2014 and has invested USD 2.3bn locally to date. In the NBFC space, it prioritises control deals – including joint control – targeting a mix of secondary buyouts, divestments from larger players, and family succession situations.

Earlier this month, the firm confirmed its second investment in the segment with micro, small, and medium enterprise (MSME) lending player Infinity Fincorp Solutions. It led an INR 19.5bn buyout alongside several existing shareholders, providing a full exit for local GP True North, the majority owner.

Nair observed that while IPOs remained the preferred route for most portfolio companies in the current market overall, there was scope for a more varied exit market depending on business type and sector.

“Today there is a slightly narrower pool of exits, but I’m hoping that as the cycle turns, we continue to see more strategic acquisitions, more exits where sponsors are not the only option, but where either global or domestic strategics also come in force,” he said.