MUMBAI: IDFC and Shriram groups are in talks to combine all or some of their businesses in a mega union that could straddle traditional banking, consumer lending and truck financing, apart from providing billionaire Ajay Piramal an entry into a highly regulated industry.
The board of Shriram Capital, the holding company for the consumer lending arm Shriram City Union and truck financing subsidiary Shriram Transport Finance, will meet on Saturday to discuss a proposal to merge with IDFC Bank, said two people familiar with the development. Negotiations are in an advanced stage, but there is no certainty that the transaction would be completed, they added.
The proposals being discussed also include the merger of the listed arms Shriram City Union and Shriram Transport Finance with IDFC Bank, one of the two people said. This is likely to take time as the priority will be the merger of the unlisted parent Shriram Capital with IDFC Bank.
Once the merger of Shriram Capital with IDFC Bank is completed, the two Shriram group companies could then combine with IDFC Bank to form a financial services giant, said one of the people cited above.
Such an entity could have a combined market cap of Rs 62,000 crore based on Thursday’s stock prices and would be counted among the country’s top financial services firms.
ET NOW, the business news channel of this newspaper, was the first to break the story on Thursday afternoon.
IDFC and Piramal declined comment, saying they would not comment on market speculation. “As a part of corporate strategy, the company continuously evaluates various opportunities for enhancing the stakeholders’ value,” Shriram City Union said in a notice to exchanges.
“At any point of time, we receive many proposals for merger … we have to look at these proposals, their feasibility, and advantage to our shareholders,” said the second person.
IDFC Bank, which bagged universal banking licence in 2014, proposes to pay in stock and would seek regulatory approval.
The merger of Shriram Capital with IDFC Bank, if it goes through, will make the two Shriram companies subsidiaries of the latter. Since RBI regulations do not allow banks to separately lend through subsidiaries, their eventual merger with IDFC Bank may be a real possibility.
close to 6% in the past two days. Shriram City Union Finance, however, has been flat during the period. On Thursday, Shriram Transport ended up 1.2% at Rs 1,107.90 while Shriram City Union lost 1% to close at Rs 2,519.95.
IDFC Bank has gained 11.83% in the past two days while IDFC Ltd has gained 10.38%. On Thursday, IDFC Bank gained 1.69% to close at Rs 63.35 while IDFC rose 0.25% to Rs 60.60.
The transaction would be boon for both the groups. For Shriram Group, which wanted to own a bank but was unwilling to meet the conditions for a universal bank licence, it would be a dream come true. IDFC Bank, which has been struggling to build a retail business despite bagging a bank licence three years ago, would get millions of customers on a platter and a presence in consumer and truck lending.
The strength of Shriram City, in which Ajay Piramal owns 10%, lies in lending to small and medium enterprises and to buyers of motorcycles and scooters. It had assets under management of Rs 24,536 crore as of March 31, 2017, and 36.34 lakh customers. The company reported profit after tax of Rs 556 crore for the last financial year.
While IDFC Bank would benefit from the takeover, a bigger financial services game may be emerging for the best home-grown deal maker Piramal, who pocketed $3.7 billion in 2010 from the sale of his pharmaceuticals business to Abbott.Piramal’s journey with the Shriram Group began in 2013, when he bought 10% in Shriram Transport Finance, the nation’s biggest lender for buying second-hand trucks with 14.5 lakh customers.
Subsequently, he acquired 10% in Shriram City Union in 2014, and a fifth of Shriram Capital, paving the way for his takeover of the Chennai-based group from its founder R Thyagarajan. He became the chairman of the holding company in 2015 amid some high-profile exits including that of R Sridhar of Shriram Transport, who was credited with building the business.