Shriram Capital, Shriram City Union to merge with Shriram Transport

Shriram Capital Ltd (SCL) and Shriram City Union Finance (SCUF) will merge with Shriram Transport Finance Company (STFC) as part of restructuring in Shriram Group.

The new entity, which will be the largest retail non-banking financial company (NBFC) in India, will be named Shriram Finance Ltd (SFL).

The merger, which will lead to a simplified corporate structure, is expected to pave the way for the exit of investors like Ajay Piramal. Piramal, who holds 20 per cent in SCL and 9.96 per cent in SCUF, will hold 8.37 per cent in the merged entity, Shriram Finance.

The less complex structure may attract fresh investors to the new entity.

After the merger, the entity will have assets under management (AUM) of over Rs 1.5 trillion, more than 20 million consumers, and a distribution network of around 3,500.

All of these will be serviced by a team of more than 50,000 employees. Pursuant to the merger, STFC will issue 1.55 shares for every one share of SCUF and 0.097 shares for every one share of SCL, STFC said in a filing with the BSE. The group expects to complete the merger in nine months.

STFC closed 1.76 per cent lower at Rs 1,476.25 per share on the BSE. SCUF closed 5.87 per cent higher at Rs 2,143.6 per share.

The boards of the three companies approved the merger on Monday. It is subject to the approval of the shareholders of three companies and regulatory bodies like the Reserve Bank of India, National Company Law Tribunal, and National Housing Bank.

The company will launch a super-app called “Shriram One”, where all lending, savings, and insurance products will be available on a single platform.

“We are simplifying our holding structure, eliminating multiple layers. After the merger, what we get is the largest retail NBFC in the country. Hence the benefit will come from synergies and how we can enhance our touch points with the existing customers,” D V Ravi, managing director of Shriram Capital, told Business Standard. He added the tech stack would also become common, helping the customers to access all the products. It will also enhance the company’s distribution footprint across all business lines without incurring any incremental capex.

The merger will help the group bring together all its lending products -- loans for commercial vehicles, two-wheeler loans, gold loans, personal loans, auto loans, and small enterprise finance.

SCL will merge with STFC after the de-merger of all other businesses of the group -- namely life insurance, general Insurance, and all non-lending and non-insurance activities.

Shriram Housing Finance will become a subsidiary of Shriram Finance with an 85.02 per cent holding. Shriram Finance will hold 44.56 per cent in Shriram Automall India after the merger. All other businesses, including insurance, will be held separately outside the listed entity.

The announcement comes two weeks after Shriram Group’s founder, R Thyagarajan, came up with a succession plan through the trust route by appointing a board of management to run the Shriram Ownership Trust (SOT).

Umesh Revankar, executive vice-chairman and chief executive officer (CEO) of STFC, will be vice-chairman of the merged entity.

Y S Chakravarti, managing director (MD) and CEO of SCUF, will be MD and CEO of the merged entity. Parag Sharma, chief financial officer, will work as whole-time director on the board.

“The idea is to integrate and make all the products -- lending, insurance and savings – under one platform. The tech stack is built to make customer life easy,” Chakravarti said.

He added Shriram Finance would enhance its product basket with new products and thereby look at segments like supply-chain finance and discounting in the logistics segment.

SCUF and STFC see this merger as an opportunity to strengthen their offers and provide a more holistic product basket encompassing all lending products.

Morgan Stanley and ICICI Securities were financial advisors in this transaction. The valuation exercise has been conducted by Bansi C Mehta & Co and Ernst and Young (EY). EY has also assisted in the restructuring and taxation assessment for the transaction. J&M Legal has been the legal advisor. HSBC and JM Financial have helped with the Fairness opinion. PwC will help STFC and SCUF navigate the post-merger integration process.

“We have very few overlaps in terms of branch network. We don’t want to be just a digital-only company. We want to reach out to consumers for businesses like gold loans, expanding to more geographies, and opening a greater number of branches,” Chakravarti said.