Shriram Group announced the restructuring plan of its financial services businesses- Shriram Transport Finance Limited and Shriram City Union Finance Limited on Monday 14th December 2021. Let’s discuss more this corporate announcement and know what should shareholders do post this merger of the 2 Financial Services arms of Shriram Group.
Restructuring of Financial Services Business of Shriram Group:
- This restructuring of the Financial Services Business of Shriram Group which was announced on 14th December 2021 will lead to the creation of India’s largest retail finance non-banking financial company (NBFC) with the merger of Shriram City Union Finance Limited and Shriram Transport Finance Limited.
- Currently (as of 13/12/2021) Shriram Capital Limited (SCL) is the holding company of Shriram Transport and Shriram City Union where it owns 26.04% and 33.86% stake respectively. This will result in the exits of Ajay Piramal-led Piramal Group and TPG from Shriram Capital.
- Now, this holding company, as well as the 2 subsidiaries company, will be merged and all together will be formed a new company named Shriram Finance.
- Further, Shriram Transport owns a subsidiary company i.e., Shriram Automall, where it owns 44.56% stake, while Shriram City Union also has one subsidiary named Shriram Housing, in which it holds an 85.02% stake. Post the merger, these 2 subsidiaries- Shriram Automall and Shriram Housing will remain the subsidiary companies of Shriram Finance.
- Now a new company (merged) will be formed as ‘Shriram Finance’ where the promoter holding will be 20%, where there are 2 companies- Shriram Ownership Trust and Shriram Financial Ventures Private Limited (SFVPL). These 2 promoter companies will own 1.88% and 18.23% stakes respectively, while the rest 79.89% will be owned by other Public Shareholders.
Shriram Group Restructuring- Swap Ratio:
- If an investor is holding 1 share of Shriram City Union, he/she will be getting a 1.55 share of Shriram Transport Finance
Structure of Shriram Transport Finance:
- Shriram Transport Finance is majorly into the Vehicle Financing business.
- As of September 30, 2021, Shriram Transport Finance is having an Asset Under Management of around Rs. 1.21 Lakh Cr. where Passenger Vehicles (PVs) loans comprise 20.4%, Heavy Commercial Vehicles & Construction Equipments (HCVs & CEs) of 47.98%, Medium & Light Commercial Vehicles (M&LCV) of 26.01%, and others (5.61%).
- In terms of share of New Vehicle Finance and Used Vehicle Finance in the Total Vehicle Finance (96.8%) is 5.4% and 91.4% respectively.
Structure of Shriram City Union Finance:
- As of September 30, 2021, Shriram City Union Finance is having an Asset Under Management of around Rs. 30,425 Cr. where Small Enterprise Finance loans comprise 47.3%, 2-Wheelers of 22.2%, Personal Loans of 9.3%, and others (21.2%).
Strong PAN-India presence of Shriram Finance:
- Post-merger of Shriram Transport Finance and Shriram City Union Finance, the merged entity will have 2,796 branches. Currently, Shriram Transport is having 1,825 branches and Shriram City Union Finance is having 971 branches.
What Should Shareholders Do?
The merger of the financial services arm of the group is a sensible action by the Shriram Group, and hence existing investors can continue to be part of this stock as they are going to be a part of a bigger NBFC. And for the investors who are planning to invest in this stock, should closely observe this corporate event and track how things develop after this for the company and then should take decisions accordingly