Piramal buys 10% stake in Shriram Transport for $307M; TPG Capital exits in a multi-bagger

Piramal Enterprises said on Friday that it acquired approximately 10 per cent stake through block deals in Shriram Transport Finance Company Ltd, the Chennai-based commercial vehicle financier. The stake was acquired by Piramal for Rs 1,652 crore ($307 million).

TPG scores largest PE exit (yet) in 2013

The stake was sold by TPG Capital, which has made multi-bagger returns in the process. TPG, through its arm Newbridge India Investments II, sold 10.07 per cent stake in Shriram Transport on the Bombay Stock Exchange. This round of sale comes after TPG sold 9.99 per cent stake in February this year for Rs 1,620 crore.

The private equity major has made a total of around Rs 3,272 crore or $608 million from its investment. TPG Capital is expected to make between 6x-7x returns on this exit.

This will be the largest PE exit in India this year till date, coming after Warburg Pincus’ sale of controlling stake in the Alliance Tire Group (ATG) to KKR & Co last month.

TPG Capital, through Newbridge, paid $100 million or Rs 450 crore for 49 per cent stake in the holding arm of the promoters – Shriram Holdings (Madras) Pvt Ltd – in 2005. In a corporate restructuring, the promoter arm was merged with the public-listed Shriram Transport.

The deal was the first transaction between TPG and the $9 billion Shriram Group, which has interests in various sectors – from financial services to infrastructure to real estate. TPG Capital later invested in a number of Shriram Group companies.

As of now, TPG holds 25 per cent stake in Shriram City Union Finance, a consumer lending businesses. It also owns stake in the holding company, Shriram Capital, and invested $100 million in Shriram Properties, the real estate unit of the group. In March 2011, TPG acquired the assets of Vishal Retail for Rs 70 crore through Shriram Retail.

The scrip of Shriram Transport moved up over 5 per cent in the day to close at 760.5, up 3.6 per cent on the Bombay Stock Exchange on Friday. Piramal paid Rs 723 per share, a 1.15 per cent discount to the closing price on Thursday.

Shriram Transport reported 25.11 per cent increase in total assets under management to Rs 52,717.18 crore in FY13, compared to Rs 42,137.27 reported in FY12. For the entire fiscal, the NBFC has reported 11.81 per cent rise in net profit to Rs 1,463.42 crore, compared to Rs 1,308.81 crore in FY12.

Piramal’s exposure to consumer finance

The stake buy comes at a time when Shriram Transport is said to be one the contenders for a banking licence. It remains to be seen if this deal is a pure financial investment or a play towards the banking sector.

Piramal itself has a presence in the financial services sector and has ambitions to build an asset size of Rs 15,000 crore, according to a recent Economic Times report. Its financial services business is led by former SBI chairman AK Purwar.

“The investment is in line with Piramal’s long-term strategy for the financial services business,” said a company statement.

“Acquisition of this stake in Shriram Transport is in line with our strategy for building our presence in financial services sector and we see long-term shareholder value creation from this stake acquisition. Shriram Transport is well known for its strong governance and business ethics, which resonates well with Piramal Group’s business philosophy,” said Ajay Piramal, chairman of the group.

Piramal has an NBFC with a loan book of Rs 1,000 crore and focused on real estate, education-related infrastructure, hospital projects and medical equipment. It also makes structured investments in infrastructure projects and has recently struck deals with Hyderabad-based infrastructure company Navayuga Road Projects and renewable energy firm Green Infra.

Piramal Enterprises also bought 11 per cent stake in Vodafone India, the second largest telecom firm in the country by revenues, for Rs 5,863 crore last year.

(Edited by Sanghamitra Mandal)

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