November 10, 2021
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Shriram Group planing for merger & hive off insurance biz
Shriram Group has plans to restructure its various financial services businesses that includes lending and insurance by merging its two listed units into one and reverse merging the holding company into it, while spinning out insurance into a separate entity
The proposed reorganisation, if approved will lead to a simplified corporate structure and allow its investors— billionaire Ajay Piramal and TPG Capital —an exit from the privately held entity.The group, headed by patriarch R Thyagarajan, is expected to approach the respective boards and shareholders in the next fortnight.
The merged lending entity will have Rs1.5 lakh crore of assets under management, making it among the top five shadow lenders in the country.
Under the plan being considered, two listed companies, Shriram Transport Finance Co and Shriram City Union Finance Ltd are to get merged. Once the merger between the two listed companies takes place, Shriram Capital is likely to get reverse merged into the new combined listed entity.
Shriram Transport is a leading financier of new and pre-owned trucks. Shriram City Union, is a non-bank finance company that gives loans for consumer goods, gold and motorcycles, where it is a market leader.
Shriram Ownership Trust and Shriwell Trusts together own 42.9% of the unlisted Shriram Capital; Sanlam Group has a 26% stake, while the Piramal Group has 20%. TPG Capital owns 9.4% and individuals own the residual 1.7% as on March 2021
Shriram Capital also houses its life and general insurance businesses, a 77:23 JV with South Africa’s Sanlam Group. As part of the restructure, the insurance business is expected to be spun out or demerged into a separate unlisted company.
The Shriram Group denies all such speculations. These are nothing but speculations based on old discussions, now resurfacing.
Bloomberg was the first to report about the impending merger on Monday evening.
Editorial Comments : We believe its current valuation is still reasonable and the stock has the potential to rerate as we expect its ROE to improve over FY22-23.
