MUMBAI: The Shriram Group, which earlier this month exited the housing finance arm selling its entire 85% stake to the American private equity major Warburg Pincus for R4,630 crore, is looking at a strategic partner for its holding company Shriram Capital, the largest auto-focused non-bank lender today.
The Chennai-based group, founded by the industry veterans Ramamurthy Thyagarajan, AVS Raja and T Jayaraman way back in 1974, is also into general and life insurance businesses, apart from wealth management, and real estate besides the cash-cow commercial vehicles, two & four-wheelers, gold loans, and small business loans.
“We are looking at a strategic/financial partner for Shriram Capital, our holding company. Though I have the board mandate to rope in a strategic partner, I haven’t started negotiations with anyone yet. But yes, we are seriously looking at strategic investment, we have a huge growth opportunity in our business,” the vice chairman Umesh Govind Revankar told TNIE in an interaction at his Mumbai headquarters without offering a timeline for the same and how much stake they are ready to pare except saying the holding company’s 25% stake won’t be diluted.
When asked if it could be a PE partner, he ruled out they being the preferred choice saying “we aren’t keen on roping in a private equity player; we would be keen on a strong group with deep pockets to be our financial and strategic partner”. Explaining the rationale for looking at a non-PE partner Revankar said, normally PEs invest in listed companies and our holding company Shriram Capital is privately held.
Also, PEs demand higher stake, but we will not go down below 25%. So that makes a non-PE player a better fit for us.” It can be noted that in late 2011, Piramal Enterprises had entered the ShriramGroup investing R4,583 crore in three Shriram businesses but exited the stake through block deals in June 2023.
Piramal also had 20% stake in Shriram Investment Holdings, which the Chennai group is now trying to buyback for which it had invested R1,440 crore. Piramal held 8.34% in Shriram Finance which it exited in June 2023 for R4,824 crore.
On the reason for the Ajay Piramal led group to exit, Ravankar said, since there was no non-compete clause in the investment agreement, once they entered the financialsector on their own doing it separately made better commercial sense. On his business growth this fiscal, Revankar said he expects loan growth to come in at least 15%, and also maintain stable margins at 9%. This optimism is based on the cost of funds marginally coming down from the second half as he sees a rate cut in the third quarter.
Led by commercial vehicle finance which is as much as 47.5% of its loan book,the auto sector exposure is as high as 82% for the company but Revanker is comfortable with the current asset mix up, though he would not mind increasing the gold loan book which today is only 2.8% or R6,300 crore as of end-March.
“Of our 3,000 branches, gold loan is available at only 1500 of them now. Given its demand and the more than fully secured nature, we want to grow it faster. Accordingly, 500 more of our branches will offer gold loans this fiscal,” he said.
They are planning to open 150 more branches this fiscal, he added. On fund raising he said to fuel a 15% loan growth we would need at least R30,000 crore of additional capital, which we will raise from the market andt hrough banks.
The company closed the March quarter with R2,021 crore net income, which was 57% more than what it had earned in the same period of FY23.