Piramal Enterprises, which owns equity stakes in three Shriram Group companies, has started the process of exiting the Chennai-based financial services group by selling its entire 9.96 per cent stake in Shriram Transport Finance Company (STFC) for Rs 2,300 crore to a clutch of 26 investors.
Piramal sold its shares in STFC at the rate of Rs 1,000-1,015 a share, earning a 40 per cent return in six years. A top Shriram Group official said Piramal will also exit from Shriram City Union Finance (SCUF) and the group’s unlisted holding firm, Shriram Capital. Piramal also holds 20 per cent in Shriram Capital and 10 per cent in SCUF.
R Thyagarajan, founder, Shriram Group, said it was not a panic exit but a strategic one. “Piramal came in as an investor and, as a second step, he participated in the management growth and development, and it was perceived that he would take over the reins of the group. As an investor, anybody will look for exits for several reasons, and one possibility, in this case, could be Piramal may have found a new investment opportunity,” said Thyagarajan.
In a statement, Piramal said the company had announced its intention to exit from its investments in Shriram in April. “This divestment today is in line with our pre-stated intent and one of the steps of a broader strategy to leverage huge opportunities for strategic growth in our own financial services business,” it said.
A Business Standard analysis shows Piramal made over 40 per cent cumulative returns since its purchase, which translates into annualised returns of 6 per cent per annum. The average annual dividend yield of 0.84 per cent during the period means Piramal made total annualised return of around 7 per cent.
Piramal’s investment in STFC underperformed the Sensex. During the same period, the Sensex appreciated at a compound annual rate of 11.7 per cent plus an average dividend yield of around 1.2 per cent a year on average during the period translating into total yield of around 13 per cent in last six years.
Piramal had invested Rs 1,636 crore for a 10 per cent stake in STFC in December 2014, and Rs 2,146 crore for 20 per cent stake in unlisted Shriram Capital in April 2014.
In an interview earlier this month to Business Standard, Piramal Enterprises Chairman Ajay Piramal had said that in any financial sector company, the most important thing is its culture and its people. “If we try to impose Piramal’s culture on Shriram, I don’t think it will do well. Similarly, if we try to do it the other way, then Piramal may not do well,” he had said.
“Shriram Group has unique strengths — it has people who understand the community and lend to retail. For Piramal, to do that is impossible, as we have expertise in wholesale. Therefore, we said the two have to be separate. Then it is better we quit from one place, so we will exit from Shriram,” he had said.
On Monday, the STFC stock closed at Rs 1,015 a share, down 6.15 per cent, while Piramal declined 3 per cent to Rs 2,005 a share.
Piramal had acquired a 10 per cent stake in SCUF for Rs 790 crore at Rs 1,200 a share in June 2014. On Monday, the stock closed down 2.1 per cent at Rs 1,422 a share. Piramal’s 10 per cent stake in SCUF is worth Rs 938 crore — taking today’s share price into account.
The company is facing some trouble with its real estate lending portfolio due to the fall in real estate prices and a crisis in the non-banking financial companies.
Thyagarajan said the merger plan among Shriram Group companies is still on, though it would take time. Under Piramal’s leadership, it was proposed to merge STFC and SCUF with Shriram Capital — thus, listing the holding company. But this plan could not take off. While STFC specialises in financing second-hand trucks, SCUF is into consumer lending.
Source: Business-Standard