Nomura retains buy on Shriram Transport, investors to get little benefit from merger
Nomura has retained a buy rating on Shriram Transport Finance Corporation with a target price of Rs 1250 and feels that the investors will need to be compensated by a high premium in the SWAP ratio on its merger with the IDFC Group.
Global Markets Research firm Nomura has retained a buy rating on Shriram Transport Finance Corporation with a target price of Rs 1250.
On the merits of the proposed merger with IDFC Group, the research firm sees little direct benefit to Shriram Transport Finance Corporation, and views management’s justification of access to IDFC’s platform/superior technology and cross-selling opportunities is something that already existed within the group or it could have been built organically.
The key motivation for the merger from Shriram Transport's perspective as per the management was that with this merger Shriram Group would become part of a larger universal bank franchise, which would lead to cost of fund improvements and provide significant cross-sell opportunities. Apart from the broader bank benefit-specific advantages, the management indicated IDFC Bank/Group has invested significantly in a technology platform, which it could take advantage of as a consolidated company. The view remains that there is little benefit for STFC's shareholders in this merger, hence investors will need to be compensated by a high premium in the SWAP ratio, the research firm said.
The research firm further said, Shriram Group earlier did not apply for a universal bank licence when RBI opened up bank licensing. The catalyst for considering a merger with a banking group now (IDFC Group) is that RBI is now allowing monoline NBFCs to co-exist under a holding structure, as per the conditions under on tap licensing.
The management sees that in IDFC Group, IDFC has already set up a banking platform and it would save the time involved to set up a bank with better technology platform and enhanced product offering to STFC’s customer base. Nomura is also of the view that a bank licence and better technology platform are options the group can consider individually and there are many cross-sell opportunities within the Shriram Group.The research firm further added that both groups will start the due diligence process, and they reiterated a 90-day timeline to decide the SWAP ratio and a 12-month timeline for the merger to be completed. In the case of STFC, the merger will require 74 percent of all shareholders to vote in favour to be approved. At present, Shriram Capital, the Piramal Group and Sanlam hold 39 percent of STFC. A 74 percent overall voting for the merger would require 58 percent of minority investors to vote in favour.