Piramal to buy 20% stake in Shriram Capital

Mumbai: Ajay Piramal’s Piramal Enterprises Ltd on Thursday said it had agreed to acquire an effective 20% stake in Shriram Capital Ltd, an arm of the Chennai-based Shriram Group, for an aggregate consideration of ₹ 2,014 crore, as it seeks to reinforce its presence in the financial services industry.

“This investment builds our presence in the financial services sector and we see long-term shareholder value creation from our partnership with Shriram Capital,” said Ajay Piramal, chairman of Piramal Enterprises.

The latest transaction followed a ₹ 1,636 crore investment by Piramal last year to acquire a 9.9% stake in Shriram Transport Finance Co. Ltd, another affiliate of the Shriram Group.

The latest purchase helps Piramal Enterprises gain entry into the retail financial business, having focused so far on corporate debt and equity financing for realty, infrastructure and education projects.

The company, which sold its generic drugs business to Abbott Laboratories in 2010 for $3.72 billion (around ₹ 22,470 crore today) and an 11% stake in Vodafone India Ltd for ₹ 8,900 crore last week, is using some of that cash to chase its ambition of becoming a financial services powerhouse.

“Financial services and information management are also sunrise sectors besides pharmaceuticals,” Ajay Piramal had told Mint on 10 April. “And we are present in all three sectors.”

Piramal Enterprises will have the right to nominate two people on the board of Shriram Capital, the holding company for all the non-banking financial services and insurance entities of the Shriram Group.

The 20% stake gives Piramal Enterprises a presence in all financial services areas including vehicle financing, general and life insurance, consumer and gold loans, and brokerage and mutual funds.

Shriram Capital owns six separate companies under its fold. These include two listed companies—Shriram Transport Finance and Shriram City Union Finance Ltd—and four privately held entities—Shriram Insight Share Brokers Ltd, Shriram Wealth Advisors, Shriram Life Insurance Co. Ltd and Shriram General Insurance Co. Ltd.

UBS was the sole financial adviser to Piramal Enterprises on the transaction. Amarchand and Mangaldas and Suresh A. Shroff and Co. acted as its sole legal adviser.

Trilegal acted as the sole legal adviser for Shriram Capital.

The investment gives Piramal Enterprises access to a vast retail network of nine million customers that Shriram has built, besides the long-established retail finance and insurance businesses.

“A possibility of Shriram group getting a banking licence will be an added advantage for the Piramal Group to fulfil its dream of establishing its presence in banking,” said an industry consultant, who didn’t want to be identified.

According to Shriram Group founder and chairman R. Thyagarajan downplayed banking ambitions. “Getting a banking licence is not an obsession for the group,” he said.

The Shriram Group will invest a part of the proceeds from the deal to expand overseas, said Thyagarajan.

“Our partner in insurance business Sanlam Financial Services has been looking for expanding into other Asian countries. So we will also try to expand into those markets with insurance as well as other segments that we are into,” he said.

Shares of Piramal Enterprises gained 1.1% to close at ₹ 602.40 on Thursday on BSE, while the benchmark Sensex rose 1.58% to 22,628.84 points.

Shares of Shriram City Union Finance and Shriram Transport Finance gained 1% and 2.99%, respectively, to close at ₹ 1,214.95 and ₹ 746.90.