Piramal Enterprises' bets on Shriram group pay off

Gains Rs 2,787 crore on investments in two listed entities of the group

The Ajay Piramal-owned Piramal Enterprises is sitting on mark-to-market gains of Rs 2,787 crore on investments in two listed entities of the Shriram group, Shriram Transport  Finance  and Shriram City Union Finance. 

The group invested in Shriram’s truck financing business in May 2013 and in the consumer finance business a year later by picking up 10 per cent in each. Piramal also bought a 20 per cent stake in Shriram group holding company, Shriram Capital, in April 2014.

Since then, Shriram Transport’s stock is up 46 per cent, thus providing 10 per cent annual returns to Piramal Enterprises. Similarly, Shriram City Union’s market value is up by 137 per cent since it was bought in 2014, providing an annual return of 16 per cent. While calculating returns, Piramal’s 20 per cent in Shriram Capital which, in turn, holds 10 per cent in the two entities, has been taken into account. 

While Piramal has gained in the listed entities, returns from Shriram Capital cannot be calculated as it is unlisted. But analysts said as Shriram Capital’s stock was illiquid, it would not offer an exit option to the Piramal group and hence the merger plan with IDFC Bank. With a merger between IDFC Bank and Shriram’s listed entities, Piramal would, if needed, be able to exit his investments in Shriram Capital, which would become a holding company of the bank with IDFC.

Besides, the listed businesses, Shriram Capital also owns stakes in the life and general insurance business, which would provide additional value to the Piramals. The insurance businesses are likely to be merged with IDFC and a clear picture will emerge on Saturday after the board of Shriram Capital and IDFC meet.

The Piramal group started investing in the Shriram group by acquiring a 10 per cent stake in Shriram Transport Finance Company for Rs 1,636 crore in 2013. Shriram Transport Finance Company has a Rs 30,000 crore truck financing business. A year later, the Piramal group invested another Rs 790 crore in Shriram City Union, a consumer and gold finance company, for a 10 per cent stake. Post-merger, Piramal Enterprises would not be able to own more than a 10 per cent stake in the merged entity under the Reserve Bank of India’s norms on corporates owning stakes in banks, said a banking source.

This is not the first time Piramal’s investments have received good returns. Earlier, Piramal exited his investments in Vodafone India with close to 20 per cent returns. In 2010, Piramal made corporate history when he sold his pharmaceuticals business to Abbott for $3.7 billion.