CASE STUDY

Acquisition of Sonata Finance

by Kotak Mahindra Bank

Compiled and presented by

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MICROFINANCE IN INDIA
The microfinance sector provides low-income people with
Indian Microfinance
3 Lakh Crore Industry Size
financial services like lending, insurance, and pensions.
Microfinance Loan Portfolio in India
Categories of microfinance industry participants:
Small Finance Banks, NBFC MFIs, Banks, and Non-profit MFIs.
23.5%
YoY Growth in loan portfolio MARKET GROWTH DRIVERS

5.46 Lakh Crore

Switch to Microfinance
6.2 Crore from Traditional Lending
Healthy market demand
Unique Borrowers
Digital penetration has allowed to Post covid increase in
economic activity and pent
2.87 Lakh Crore

quickly convert and manage users

12 Crore CAGR
in a low-cost more efficient digital up demand
Loan Accounts model
11.3%
Adoption of Cutting-Edge
Technology in Microfinance
Government push
1.81 Crore
Loans Disbursed in FY22 New technology has opened new Various measures by
channels for distribution and government and RBI boost
2022 2028 increase their revenue opportunities funding for MFI sector
Source: zeebiz.com | business-insider.in
Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 02
TOP MARKET PLAYERS

KEY FEATURES OF
MICROFINANCE IN INDIA
285,441
Low income background of borrowers
Top Microfinance Companies in India by
Assets Under Management (AUM)
Loans are of small amounts upto
Rs.500,000

Short Loan tenure upto 48 months

16,599
Collateral is not required
6,581
4,122 4,366 4,054 Repayment at higher frequencies
2,956
768
(weekly, monthly, quarterly)
Annapurna BSS CreditAccess Arohan Asmitha Muthoot Spandana Cashpor
Finance Microfinance Gramin Financial Microfinance Microfin Spoorty Microcredit Loans are usually for income
Limited Limited Services Limited Limited Financial generating activities
Limited Limited

Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 03
ABOUT THE BUYER - KOTAK MAHINDRA BANK
Founded: 1985
Founder: Uday Kotak Business Verticals
Kotak Mahindra Bank Limited is an Indian banking and financial
services company headquartered in Mumbai. It offers banking
products and financial services for corporate and retail customers Treasure, BMU and Corporate and
Retail Banking
in the areas of personal finance, investment banking, life Corporate Centre wholesale banking
insurance, and wealth management.
Money Market, forex Wholesale borrowing Lending
It is India's third largest private sector bank by market market, derivatives, and lending and other
capitalisation after HDFC Bank and ICICI Bank. The bank has 1600 securities, Balance ancillary services Branch Banking
branches and 2519 ATMs. sheet management unit
(BMU) Credit Cards

2003
Kotak Mahindra Finance Ltd. 2016 2019
Acquired BSS 2021
becomes India’s first non- Opened first
Microfinance Private Acquired vehicle
banking finance company to international branch in
Limited financing portfolio of
convert into a commercial bank. Dubai, UAE
Volkswagen Finance

1985 2014 2018 2020 2022

Established Kotak Capital Merger of ING Vysya Launch of Kotak Raised Rs. 7,400 crore Acquired DLL India’s Agri
Management Finance Ltd Bank with Kotak Infrastructure Debt Fund through QIP Business and healthcare
focused on Bill Mahindra Bank. equipment financing portfolio
Discounting.
Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 04
 ABOUT THE BUYER – BSS MICROFINANCE
BSS Microfinance is carrying on its activities as a Business Correspondent of
Kotak Mahindra Bank Limited, by extending microloans to poor women for
income generating activities to come out of poverty & presently its spread
across five states namely, Karnataka, Maharashtra, Madhya Pradesh, Bihar and
States covered by
Tamil Nadu. BSS Microfinance
Founded: 1999

Product: Microloans ranging from Rs. 5,000 to Rs. 80,000 under joint liability
group model

Revenue (FY22): Rs. 252.75 Crore

EBITDA (FY22): Rs. 81.59 Crore 400 Branches across 5 states

In October, 2016, Kotak Mahindra Bank acquired BSS Microfinance to tap the
lower end of the customer base and meet the priority sector lending (PSL)
targets, as BSS’ loans book qualifies for PSL.

Deal Size: 139.2 Crore

AUM: 483 Crores EV/Revenue: 1.4x
Net worth: 73 Crore EV/EBITDA: 1.9x
Customer Base: 217,000
Branche Network: 78 Branches across 3 states

Source: business-standard.com | Annual reports

Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 05
 ABOUT THE SELLER: SONATA FINANCE
FINANCE
Sonata Finance is engaged in financial inclusion and economic empowerment of women and underprivileged sections of
the society. Sonata is backed by global social and impact-investing funds. The company provides loans to joint liability
groups as well as individuals for a range of income-generating activities.

Income
PRODUCTS Generating
Rs. 10k-20k
Interest upto 25% Loans
Home Rs. 20k-100k
Improvement
Group Interest upto 25%
Loans Lending
Utility Two Rs. 100k-500k
Individual
wheeler Interest upto 25%
Loans Lending
Rs. 10k-20k loans
Interest upto 25% Sanitation Rs. 28k-100k
Loans Rs. 30k-60k Interest upto 25%
Interest @ 21%
Rs. 15k-35k
Interest upto 25%

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Source: reuters.com | sonatafinance.com Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 06
SONATA FINANCE
Creation Investments
EXISTING Social Venture Fund II LP
States covered by SHAREHOLDERS Societe de Promocion Et
Sonata Finance De Participation Por La
Private Limited Cooperation Economique
SIDBI Trustee Company
Limited
19% 22% Triodos Custody BV

502 Branches across 10 states 5% Triodos SICA V II Triodos

Microfinance Fund
6%
15% Creation Investments
6% Social Venture Fund
8% India Financial Inclusion
7% 12%
Fund LLC

Anup Kumar Singh

(Promoter)

Other Minority
Shareholders

Source: Annual reports 7

Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 07
 KEY FINANCIAL METRICS
Amounts in INR Crores

2021-22 2020-21 2019-20 2018-19 2017-18 343.83

317.48
Operational 297.54 269.63 343.83 317.48 216.46 297.54
Revenue
269.63
Total Revenue 305.67 272.19 348.88 320.24 240.86
EBITDA 168.42 160.77 177.46 206 87.85 216.46
206
EBITDA Margin 55% 59% 51% 64% 36% 177.26
168.42
160.77
Interest 146.24 151.96 155.9 155.55 137.07
EBDT 22.19 8.82 21.56 50.44 -49.23
87.85
EBDT Margin 7.3% 3.2% 6.2% 15.75% -20.4%
50.44
PAT 13.62 4.39 14.09 32.99 -33.4
21.56 22.19
8.82
Net Margin 4.5% 1.6% 4.0% 10.30% -13.9%
2017-18 2018-19 2019-20 2020-21 2021-22

-49.23 Revenue EBITDA EBDT

Source: Venture intelligence Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 08
SWOT ANALYSIS

S • Strong player in financial inclusion segment

• Complementary geographies
• Large branch network (500+ branches)
• Low margins as compared to peers
• Presence in regions where recovery is a
challenge
• Strong presence of promoter in operations
W
who has an expertise of more than 2 decades

• Cut throat competition in MFI

• Strong regulatory push
• No use of SHG peer pressure groups for
• Opportunity to expand financial and non

O T
repayment
financial product portfolio
• Lending in unproductive segments to retain
customers

Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 09
 INDUSTRY MULTIPLES
Revenue EBITDA Multiple Enterprise Valuation (INR
Date Target Company Investors Amount(INR Cr) Stake (%)
Multiple (Pre) (Pre) Cr)
Sep-19 Arohan Financial Services Aavishkaar, Others 130 6.93 2.75x 4.25x
4,491
Mar-19 Janakalyan SIDBI VC 2 5.89 1.44x 2.33x
113
Mar-19 Sindhuja Microcredit Carpediem Capital Partners 25 47.13 8.22x NA
20
Nov-18 Janakalyan SIDBI VC 5 18.3 0.96x 1.55x
82
Jun-18 Annapurna Microfinance Oman India Joint Investment Fund 155 20.86 1.72x 3.09x
1,970
Feb-18 Pahal Financial Services Dia Vikas Capital 16 30.59 0.96x 1.44x
140
Jan-17 Arohan Financial Services Tano Capital, Aavishkaar, Others 14 26.19 1.6x 2.44x
801
Oct-16 BSS MicroFinance Kotak Mahindra Bank 139 99.49% 5.22x 7.08x
521
May-16 Disha Microfinance TrueNorth 46 30.43 1.93x 3.75x
331
Mar-15 Annapurna Microfinance SIDBI VC 25 15.84 2.21x 3.44x
216
Mar-14 Shikhar Microfinance Dia Vikas Capital 3 23.84 1.46x 3.22x
18
Jan-14 MAS Financial Services Lok Capital 41 2.82 10.26x 15.1x
1,807

Median Multiples 1.83x 3.22x

Mean Multiples 3.23x 4.34x
Source: Venture intelligence Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 010
 DEAL OVERVIEW
In January, 2022, Kotak Mahindra Bank acquired No. of shares: 26 Million
NBFC-MFI Sonata Finance to scale up its operations
in rural and semi urban markets in Northern India by No. of shareholders: 59
leveraging Sonata’s microfinance network.
Debentures as on date: Rs. 428 Crore
Deal size: 537 Crore
SYNERGIES
Revenue Multiple: 1.8x
Sonata Finance will provide a strong platform to enable the bank
EBITDA Multiple: 7.9x to become a significant player in the financial inclusion segment,
catering to economically weaker and underserved households in a
commercially viable manner.
Assets under Management (Dec’22): Rs. 1,903 Crore
• Expansion into complementary geographies of BSS
Finance in North India to cross sell and upsell products
Active loans: 900,000 (8.2 lakh active customer)
• Increase in high interest unsecured loan products from
Branch network: 502 Branches across 10 states 9% to mid teens

• Increase net interest margin (NIM) using high yielding

Employees: 2,882 assets as credit growth booms pan India
Source: www.economictimes.indiatimes.com
Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 011
SYNERGIES EXPLAINED
Financial inclusion: Kotak Mahindra
Sonata Finance provides a strong platform to enable the Bank to become a Bank’s presence in
significant player in the financial inclusion segment, catering to economically
microfinance post
weaker and underserved households with unsecured lending
acquisition
Complementary branch network:
Sonata finance services a customer base of 9 lakhs through a branch network of
502 branches across 10 states, which complements the Bank’s micro finance
network (BSS Microfinance).

Potential to scale:
The Bank can scale up its operations in the rural & semi-urban markets in the
northern states of India. Sonata is an established microfinance player with almost
two decades of experience and a deep understanding of customers in these
markets.

Value accretive:
Kotak Mahindra Bank will also leverage Sonata Finance’s network to provide a Sonata Finance

wider suite of banking products to existing customer base matching their emerging BSS Microfinance
banking needs along with its own distribution and technology.

Case Study: Acquisition of Sonata Finance by Kotak Mahindra Bank| March 2023 | 012
Compiled and presented by

Contact Us:
Hormazd@mergerdomo.in
www.mergerdomo.com

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