Piramal Enterprises Ltd is buying close to 10 per cent stake in consumer lender Shriram City Union Finance Ltd for Rs 789.5 crore ($131 million), through a preferential allotment of shares.
This marks an extension of Piramal’s association with Shriram Group after picking stake in Shriram Transport Finance last year and more recently buying 20 per cent of Shriram Capital, the privately held holding arm for various financial services businesses of the south-based group.
Shriram City Union Finance is holding an EGM on May 30, 2014 to approve the issue of 6.5 million shares at Rs 1,200 a unit to Piramal Enterprises, it said late on Wednesday.
Punters had some inkling of the proposed issue, it seems, with Shriram City Union Finance scrip rising 5.11 per cent to close at Rs 1,183.05 a share on BSE in a weak Mumbai market.
Promoters’ holding in Shriram City Union Finance will shrink from 37.56 per cent as of March 31, 2014 to 33.4 per cent. Piramal's effective holding in the company would be 16.5 per cent factoring in its 20 per cent stake in Shriram Capital, the promoter of Shriram City Union Finance.
Shriram City Union Finance is backed by a string of PE firms, including TPG, Norwest Venture Partners, Bessemer Venture Partners and ICICI Venture. Early this month, ICICI Venture sold more shares of Shriram City Union Finance, in which it originally invested around six years ago.
Piramal’s entry will shrink TPG’s stake from 22.64 per cent to 20.36 per cent, post the allotment. Piramal Enterprises will become the second-largest non-promoter shareholder of the firm.
Shriram City Union Finance recorded a 20.5 per cent rise in net profit to Rs 151.36 crore for the fourth quarter ended March 31, 2014, over the year-ago period even as total income decreased from Rs 841.14 crore to Rs 833.94 crore.
For the full year, it posted an 18.4 per cent rise in net profit to Rs 532.16 crore with total income increasing from Rs 3,099.93 crore to Rs 3,278.72 crore.
This deal will push Piramal’s exposure to Shriram Group’s financial services business to around Rs 4,455 crore or $772 million (based on dollar values when investments were announced).
Last year, Piramal Enterprises acquired approximately 10 per cent stake in Shriram Transport Finance Company Ltd, the Chennai-based commercial vehicle financier, for Rs 1,652 crore ($307 million) from private equity major TPG.
Early this month it bought 20 per cent of Shriram Capital for Rs 2,014 crore ($334 million). Shriram Capital is the holding company for the Chennai-based Shriram Group’s various financial services units, including Shriram Transport Finance and Shriram City Union Finance besides the two insurance ventures.
Shriram Capital’s operating entities have an overall customer base of over 9 million with more than 53,000 employees in 2,600 offices, net profit of Rs 800 crore with assets under management of over Rs 78,000 crore ($13 billion).
This allows Piramal Enterprises to swiftly deploy part of the cash generated from the stake sale in Vodafone India.
Earlier this month, Piramal agreed to sell its entire 11 per cent stake in Vodafone’s Indian arm to an indirect subsidiary of Vodafone Group, for Rs 8,900 crore ($1.48 billion), where it netted Rs 3,036 crore in absolute profit from the 52 per cent value growth in its two-year-old investment.
Shares of Piramal Enterprises last traded at Rs 540.1 a unit, down 3.57 per cent on BSE.
Piramal Enterprises has an existing presence in NBFC and private equity advisory.
(Edited by Joby Puthuparampil Johnson)