Shriram Housing Finance Limited (SHFL) is in the final stages of a potential acquisition by private equity (PE) funds, as they progress towards the completion of the transaction. The interested buyers, including CVC, Advent, and Bain Capital, with Warburg Pincus also in contention, have conducted thorough due diligence following the submission of non-binding bids in mid-December. It is anticipated that the next phase will involve the submission of binding bids, which is expected to occur within the next fortnight.
As a subsidiary of Shriram Finance, which predominantly focuses on commercial vehicle financing, SHFL has attracted the attention of these PE funds due to its emphasis on affordable housing. Shriram Finance currently holds an 84.82% stake in SHFL, while the remaining stake is owned by San Francisco-based PE Valiant Capital Management.
With an estimated valuation of Rs 6,500 crore for SHFL, including a control premium, initial offers have fallen short of this amount, ranging between Rs 5,000-5,500 crore. Despite Shriram Finance’s unsuccessful attempt to sell a stake last year, discussions were revived towards the end of the year, resulting in the appointment of Avendus, Barclays, and JM Financial as advisors for the sale.
Depending on the outcome of negotiations, there is a possibility that Shriram and Valiant may retain a minor stake in SHFL, with the acquirer assuming control and taking over the company. Shriram is currently assessing both internal and external options for raising capital to support SHFL’s expansion plans.
Previously, Shriram Finance had indicated the potential sale of up to a 15% stake to bring in growth capital for the mortgage lender, which has experienced a significant fourfold increase in growth over the past three years.
Although attempts were made to obtain comments from CVC, and responses from Advent, Bain, and Warburg Pincus, none were provided. Similarly, affordable housing company Aadhar HFC, owned by Blackstone, recently refiled its draft papers with the Securities and Exchange Board of India (Sebi) in a bid to raise approximately Rs 5,000 crore through an initial public offering (IPO).
SHFL reported an impressive 69% year-on-year increase in profit after tax to Rs 61.4 crore for the December quarter, with a total profit after tax of Rs 155 crore for the nine-month period, representing a 54% rise from the previous year. By December 31, the assets under management had grown to Rs 12,025 crore, with disbursals reaching Rs 5,289 crore over the same period.
Looking ahead, the tangible net worth for SHFL was reported to be Rs 1,298 crore at the end of FY23, with expectations of reaching Rs 2,000 crore by the end of FY24. The company also aspires to increase its assets under management to Rs 20,000 crore by the end of FY25, primarily through organic growth as well as strategic acquisitions.
While housing finance currently comprises 64% of SHFL’s portfolio, the remaining 36% focuses on non-housing, according to Care Ratings’ calculations in October. Sanjay Aggarwal of Care Ratings emphasized that SHFL’s lending operations commenced in December 2011, with a revamped model taking effect post-January 2019. This book features a relatively limited track record and seasoning of the loan portfolio, targeting the housing finance needs of self-employed individuals not serviced by the banking sector.
It is anticipated that the PE funds may seek the involvement of co-investors such as pension and sovereign wealth funds as part of their investment strategy.
Taking a broader view, the Shriram Group is focused on the development of new financial products and expanding its digital business. This includes entering the asset reconstruction business and unveiling a financial super app known as Shriram One, which encompasses investment planning, lending, UPI money transfer, mobile recharge, bill payments, and insurance.
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