What’s the news?

Shriram group announces merger of companies

What does that mean?

Shriram Group has announced a consolidation exercise that will create India’s largest retail financing NBFC. Shriram City Union Finance Ltd (SCUF) and Shriram Capital Ltd (SCL) announced their merger with group firm Shriram Transport Finance Co (STFC). The merged entity will be named Shriram Finance Ltd.

Before merging with Shriram Transport Finance, SCL will demerge all other businesses of the group — namely, life insurance, general insurance and all non-lending and non-insurance activities and these will be held outside the listed firm.

Post-merger, the Shriram Transport or Shriram Finance would have a combined asset under management (AUM) of over Rs 1,50,000 Cr. They would also have over two crore customers served to date and a distribution network of over 3,500. All of these would be serviced by a team of over 50,000 employees.

With regard to the share swap ratio, Shriram Transport – to be called Shriram Finance – will issue 1.55 shares for every 1 share of Shriram City Union Finance and 0.0978 share for every one share of Shriram Capital.

According to the statement issued by the Shriram Group, Umesh Revankar, Executive Vice Chairman and CEO of Shriram Transport, would be the Vice Chairman of the merged entity. Y.S. Chakravarti, the MD & CEO of Shriram City Union, would be the MD & CEO of the merged entity.

Shriram Group said the consolidation would help the conglomerate combine its lending products comprising commercial vehicle and two-wheeler loans, gold loans, personal loans, automobile loans and small enterprise financing. 

This will likely create a financial powerhouse that could end up being a market leader in all the product and consumer segments that it operates in.

How does that impact your wealth?

We have looked into the exposure of all equity mutual fund schemes to Shriram Transport Finance and Shriram city union finance Ltd. As per the latest portfolios, equity-oriented funds have an exposure of a total of Rs 2,850 Cr to Shriram Group of Companies.

The immediate market reaction has been negative to the news. After the announcement, Shriram companies’ share prices fell by over 6%.

It’s still difficult to envisage, at this stage, what this will mean in terms of impact on investor wealth in the long term. The creation of the largest NBFC, however, will be something to track and watch.