New Delhi: Ajay Piramal-controlled Piramal Enterprises Ltd on Monday sold its entire stake of about 10% stake in commercial vehicle financier Shriram Transport Finance Co Ltd., citing a “broader strategy” to leverage opportunities for growth in its financial services business.
As of 31 March, Piramal held 22.6 million shares in Shriram Transport, which specialises in financing second-hand trucks, representing a 9.96% stake. The stake sale will fetch Piramal approximately ₹2,300 crore, based on the closing price of the stock on Monday.
“Earlier this year in April 2019, Piramal Enterprises Ltd. had announced its intention to exit from its investments in Shriram and optimally redeploy capital in a market that is clearly seeing consolidation take place. The divestment today is in line with Piramal Enterprises pre-stated intent and one of the steps in a broader strategy to leverage the huge opportunities for strategic growth in its own financial services business,” Piramal said.
Piramal has a longstanding track-record of shareholder value creation and has consistently leveraged the right opportunities at the appropriate time to deliver an annualized shareholder return of approximately 28% over the last 31 years, according to the statement.
Following the share sale, Shriram Transport’s shares lost as much as 6.52%, falling to ₹1,011, its lowest since May 2017. Shares of the company ended the day at ₹1,018 apiece, down by 5.88% on the BSE. The benchmark Sensex closed at 38,960.79 points, down 1.25%. Shares of Piramal Enterprises closed 3% down at ₹2,004.85 apiece.
Piramal also owns 20% in Shriram Capital and 10% Shriram City Union Finance Ltd. Shriram Capital is an unlisted holding company, while Shriram City Union is a consumer lending business.
Piramal picked up a 20% stake in Shriram Capital ₹2,014 crore in 2014, which followed a ₹1,636 crore investment by Piramal in 2013 to acquire a 9.9% stake in Shriram Transport.
Piramal invested in the Shriram group to gain entry into the retail financial business, having initially focused on corporate debt and equity financing for realty and infrastructure projects.
Piramal has been working on exiting its investment in the Shriram Group for a few months now. In April, The Economic Times reported that the proposed exit from the three Shriram companies, including Shriram Capital, Shriram Transport Finance, and Shriram City Union Finance, could fetch Piramal around ₹9,000 crore.
Piramal’s plans to exit Shriram follow the Shriram Group’s failed attempt to merge with IDFC Bank Ltd. In July 2018, IDFC Bank and Shriram Group proposed a merger between unlisted Shriram Capital and IDFC Bank, which would create a financial services business worth $10 billion.
Under a three-tiered structure, the retail arm, Shriram City Union Finance Ltd, was to be merged with IDFC Bank Ltd, Shriram Transport Finance would become a fully owned unit of IDFC and be delisted, and IDFC would also become the holding company for the Shriram Group’s insurance businesses.
Both companies announced exploratory merger talks to be discussed over a 90-day period. However, the deal did not go through as the two entities failed to find common ground on a mutually acceptable swap ratio for the merger.
Piramal Enterprises has a presence in financial services, pharmaceuticals, and healthcare insights and analytics. Piramal’s consolidated revenue stood at around $1.9 billion in fiscal 2019, with approximately 40% of revenues generated from outside India.
The group’s financial services business, Piramal Capital and Housing Finance, provides both wholesale and retail funding. In real estate, the platform provides housing finance, including structured debt, construction finance, and flexible lease rental discounting. The wholesale business in the non-real estate sector includes separate verticals, such as corporate finance and emerging corporate lending (ECL). The former provides customised funding solutions to companies across sectors such as infrastructure, renewable energy, industrials, and auto components, while ECL focuses on small and medium enterprises.