21 Nov 2022

Shriram Group Merger Analysis

After merger of Shriram Group, Piramal, who holds 20% in SCL and 9.96% in SCUF, will hold 8.37% in Shriram Finance Limited. The merged entity is likely to have assets under management (AUM) of over Rs 1.78 trillion, more than 20 million consumers, and a distribution network of around 3,500.

author dp
Team INRBonds
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As per latest development, National Company Law Tribunal (NCLT) has approved the merger of Shriram Capital Ltd (SCL) and Shriram City Union Finance (SCUF) with Shriram Transport Finance Company (STFC). After merger, the new entity will be known as Shriram Finance Limited. the merged entity Shriram Finance may be set up by 25th November, and shares of the entity will be listed on the bourses by mid-December.

Consequent to merger, all lending products including loans for commercial vehicles, two-wheeler loans, gold loans, personal loans, auto loans, and small enterprise finance will be under one group.

     After merger of Shriram Group, Piramal, who holds 20% in SCL and 9.96% in SCUF, will hold 8.37% in Shriram Finance Limited.

     The merged entity is likely to have assets under management (AUM) of over Rs 1.78 trillion, more than 20 million consumers, and a distribution network of around 3,500.

     After merger, Shriram Housing Finance will become a subsidiary of Shriram Finance with an 85.02 per cent holding.

Tentative key financials of new merged entity

 

STFC

SCUF

Shriram Finance Ltd (merged entity)

AUM (Rs billion)

1352.49

426.63

1779.12

Net worth (Rs billion)

259.04

87.28

346.32

Capital Adequacy

23.00%

26.78%

23.00%

Gross NPA

7.07%

6.31%

6.80%

Branches

2671

986

3657

 

Name of Entity

Credit Rating

Traded Yield (MLD)

Maturity

Shriram Transport Finance

AA+

7.75%

2

Shriram City Union Finance

AA

8.13%

2

Shriram Housing Finance

AA

8.10%

2

Shriram Transport Finance Company Ltd (STFCL) is a part of the Shriram group of companies, which has a strong presence in financial services in India, including commercial vehicle financing, consumer finance, life and general insurance, stockbroking, chit funds and distribution of financial products, such as life and general insurance products and mutual fund products.

The company was established in 1979 and it has a long track record of four decades in the commercial vehicle financing industry in India. The Company has been registered as a deposit taking NBFC with the Reserve Bank of India (RBI) since 4 September 2000 under Section 45IA of the Reserve Bank of India Act, 1934.

The company is one of the largest asset financing non-banking finance companies in the organized sector in India that cater to first-time buyers (�FTB�) and small road transport operators (�SRTOs�) for financing pre-owned commercial vehicles. In addition, it provides commercial vehicle finance for new commercial vehicles. It is among the leading NBFCs in the organized sector for the commercial vehicle industry in India for FTBs and SRTOs. As of 30th Sep 2022, total promoter and promoter group holding in STFCL stood at 29.37%.

Shriram Transport Finance Ltd has been assigned long term rating of AA+ by CRISIL, CARE and India Rating.

Parameters(billion)

H1FY23

H1FY22

NII

53.35

43

PAT

20.32

9.41

AUM

1352.49

1216.46

Net worth

278.56

246.2

CRAR(%)

22.48%

23.21%

GNPA(%)

6.93%

7.82%

NNPA(%)

3.48%

4.18%

During H1FY223, STFCL�s net interest income rose by 24.08% on yearly basis while net profit increased by 116% during the same period. Capital Adequacy stood comfortable at 22.48% as of 30th Sep 2022.

On the other hand, asset quality remained weak. As of 30th Sep, gross NPA stood at 6.93% while net NPA came in at 3.48%.