Chennai-based top retail NBFC (non-banking finance company) Shriram Finance is revisiting options to unlock value in Shriram Housing Finance Ltd and has launched a process to sell a controlling stake in the subsidiary, multiple industry sources in the know told Moneycontrol.
"Attempts for a stake sale were made earlier this year and the deal has been re-launched recently with a clutch of advisors. Preliminary discussions have begun with suitors, which includes corporates and private equity funds. As of now, the plan is to divest a majority stake," said one of the persons above.
Parent Shriram Finance, which is mainly into commercial vehicle financing, owns 84.82 percent in Shriram Housing Finance, while 14.94 percent stake is held by San Fransisco, California-based private equity player Valiant Capital Management.
According to reports in March, private equity firm BPEA EQT had reached advanced negotiations to pick up a minority stake in the housing finance venture, but the talks did not proceed.
"All options are on the table depending on valuations. If required, plans may change and even a minority stake may be sold. Shriram Housing Finance needs capital to grow and it’s not a core segment for the parent," a second person told Moneycontrol.
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A third person told Moneycontrol that investment banks Avendus Capital, JM Financial and Barclays had been given the joint sell side mandate for the proposed transaction.
"Valiant Capital has been invested in Shriram Housing Finance for several years and entered the firm more than a decade back. They have the option to exit in the case of a 100 percent sale scenario," a fourth person who confirmed the majority stake sale plans told Moneycontrol.
All the four persons above spoke to Moneycontrol on the condition of anonymity.
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An email query sent to Shriram Finance, Valiant Capital and JM Financial was left unanswered at the time of publishing this article.
When contacted on the phone, an executive of Shriram Finance declined to comment. Avendus Capital declined to comment. Barclays could not be reached for an immediate comment.
This article will be updated as soon as we hear from any of the parties above.
Housing finance stocks have been buzzing in trade in recent times. Over the last six months, stocks of the top five housing finance firms (by market capitalisation), namely LIC HF, HUDCO, PNB Housing Finance, IDFC and Aptus Value have risen by 41.8 percent, 90.23 percent, 39.72 percent, 16.71 percent and 21.29 percent, respectively.
Meanwhile, the Shriram Finance stock has surged by more than 50 percent during the same phase.
In December, 2022, Poonawalla Fincorp said that it had reached an agreement with private equity fund TPG to sell the former's housing business Poonawalla Housing Finance (now rebranded as Grihum Housing Finance) for Rs 3,900 crore.
A closer look at the target, born post the Shriram Group rejig
Shriram Finance Limited is a merged entity born through the amalgamation of Shriram City Union Finance Limited (SCUF) and Shriram Capital Limited (SCL) with Shriram Transport Finance Company Limited (STFC).
Post the amalgamation with SCUF, Shriram Housing Finance Limited which was a subsidiary of SCUF, became the subsidiary of Shriram Finance. Shriram Housing Finance is registered with the National Housing Bank (NHB) and its primary operation is providing loans for the purchase or construction of residential space and loans against property.
Shriram Housing Finance Limited started its operations in 2011 and was incorporated to provide longer tenured home products to Shriram group of customers and use the entity as means of cross-selling other products within the Shriram group. The company predominantly caters to self-employed borrowers and informed salaried customers in Tier II and Tier III cities and the focus has been on lower income segment with a ticket size of under Rs 20 lakh.
Shriram Housing Finance: Key stats
For the year ended March 31, 2023, the firm had assets under management of Rs 8,047 crore (as compared to Rs 5,355 crore in 2022), total income (net of interest expenses) of Rs 401 crore (as compared to Rs 269 crore in 2022) and a PAT of Rs 138 crore (as compared to Rs 80 crore in 2022)
According to the 2023 Shriram Finance annual report, Shriram Housing Finance Ltd has 131 branches across India, with 35,575 customers with loans in its portfolio. The total employee strength as on March 31, 2023 was 1,748. The CAGR of loan disbursement of the firm over the last five years was around 40 per cent with total disbursement during the year being Rs.4,146 crore.
Shriram Housing Finance's networth stood at Rs 1,299 crore while the total capital adequacy ratio (per Ind-AS) stood at 25.5 percent as on March 31, 2023. It had raised Rs 200 crore of equity from SCUF in May 2021 and Rs 300 crore in October 2021.
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