Piramal to buy 20% in Shriram Capital for Rs 2,000 crore

Ajay Piramal, who last week became richer by Rs 8,900 crore by selling his stake in Vodafone India, is back to deal-making. He is picking up a 20 per cent stake in Chennai-based finance group Shriram Capital, spending a little more than Rs 2,000 crore.

Unlisted Shriram Capital is the holding company for as many as five businesses, including Shriram Transport Finance Company, where Piramal Enterprises already owns a 10 per cent stake. Piramal had bought the stake from private equity company TPG in May last year.

Piramal's latest investment, expected to be announced on Thursday, will be in the holding company, which has interests in Shriram Life Insurance and General Insurance, retail broking, an asset management company and Shriram City Union, which gives secured and unsecured home and personal loans. The three listed businesses - transport finance, asset management company and City Union - have a combined market capitalisation of Rs 23,601 crore.

Though he did not respond to queries on the investment, Ajay Piramal has already spoken about his interest in the Shriram group. "We'll increase stake in Shriram Capital," he told Business Standard on the day he announced his exit from Vodafone with 52 per cent returns. The Shriram stake purchase will add muscle to Piramal's financial services businesses. Piramal Enterprises, which profitably exited its domestic pharmaceutical formulations business in 2010, has gradually increased its interests in this business. It has set up a $500-million fund along with Canadian Pension Fund to lend to real estate projects.

Besides, Piramal has also extended mezzanine finance to infrastructure company Navayuga Road Projects.

The R Thyagarajan-promoted Shriram Capital's largest stakeholder is Shriram Trust, which has around 64 per cent stake. Two South African financial services companies has a 26 per cent stake, while private equity player TPG owns 10 per cent. Piramal is expected to take stake from a fresh issue of shares by the company, thereby diluting the stakes of the current shareholders.

The two most important businesses in the bouquet are Shriram Transport company and City Union, which are currently valued at Rs 16,456 crore and Rs 7,131 crore, respectively.

Stock broking firms say the transport finance business is under stress due to a sharp decline in manufacturing and pressure on profitability, which led to a drop in return ratios.

"Return ratios are at a cyclical low, with decadal high credit cost and lowest margins. However, we expect gradual improvement, as stability in business and regulatory side is emerging," said a report by Motilal Oswal.
SHOPPING SPREE

Rs 2,000 crore
Piramal's likely investment in buying 20% in Shriram Capital

Rs 8,900 crore
The value Ajay Piramal got for his 11% stake in Vodafone India when he sold it last week

Shriram Capital's stakeholders

• 64% Shriram Trust
• 26% Two South African financial services firms
• 10% Private equity player TPG