Bain or Warburg—Who will get Shriram’s housing loan business?

Ravi Subramanian, MD and CEO of Shriram Housing Finance.
Ravi Subramanian, MD and CEO of Shriram Housing Finance.


  • The Shriram Group has appointed investment bankers from Barclays Bank, JM Financial and Avendus Capital to shortlist buyers

The Shriram Group is in talks with US-based fund management giants Warburg Pincus Llc and Bain Capital LP to sell its housing arm Shriram Housing Finance Ltd for around 5,000 crore, two people directly familiar with the development said.

Shriram Housing Finance is a midsize housing finance company with assets of over 10,000 crore. The sale is part of the Chennai-headquartered conglomerate’s plan to redesign its growth strategy.

A Shriram Group spokesperson declined to comment.

Over the past few weeks, the bankers appointed by the group’s listed flagship Shriram Finance Ltd, which holds 85% in Shriram Housing Finance as the promoter, opened discussions with Bain Capital and Warburg Pincus, the people cited above said. If the negotiations conclude, a deal could be closed before the June quarter, they added.

“(We) Have received a phenomenal interest from several suitors. There are buyers with bids of up to 5,000-5,500 crore and offers are still coming. It’s a neat business and bidders are credible. So, evaluation before a sale may not take much time," the first of the two people cited above said.

The Shriram Group has appointed investment bankers from Barclays Bank Plc, JM Financial Ltd and Avendus Capital Pvt. Ltd to shortlist buyers, the two people added.

Spokespeople from JM Financial and Barclays declined to comment while queries sent to Bain, Warburg Pincus and Avendus remained unanswered.

“The demand for affordable housing finance firms is intact in India, especially given the potential in tier-II cities and locations beyond them. Also, the company’s (Shriram Housing) financials and growth rate are stronger than others in the comparable segment. The interest rate cycle is currently favourable and retail investors may benefit from that. The company has a wide presence. The buyer can leverage on these factors," said the second person.

The group will use the proceeds from a successful sale to expand new businesses in the financial services space and strengthen its balance sheet.

The Shriram Group, which is primarily in financial services, recently launched its own asset reconstruction company and a super app called Shriram One that provides a one-stop solution to customers for financial planning, investments, loans, insurance, UPI money transfers, mobile and DTH recharges, and other bill payments.

According to the two persons, apart from its core lending business done directly through its main non-banking financial company (NBFC) Shriram Finance, the group intends to focus on the new ventures and beef up the cash component in its books, which is one of the reasons why it is looking to sell off the housing finance arm that has hitherto focused on the tough business of affordable housing.

Shriram Housing’s loan portfolio has grown at a steep 44% compound annual growth rate over the last four years, and about three-fourths of its business comes from India’s western and southern states with an average loan size of 16.6 lakh.

However, the business of affordable housing has become somewhat challenging over the past year, which is another reason why the group is now planning to exit this business and redesign its growth strategy by increasing focus on Shriram Finance’s core lending business and the two insurance ventures.

“A major challenge for the housing finance company has been its concentration in the southern and western states and more than two-thirds of the housing loan business coming from unbanked, self-employed homebuyers," said the second person.

Ravi Subramanian, managing director (MD) and chief executive officer (CEO), Shriram Housing Finance, on 2 January, stated in a Mint report, “Within the affordable housing segment, we are witnessing different trends in urban vs semi-urban segments. On the urban side, high land costs and rising material costs make the affordable housing segment unattractive for realtors. Consequently, the share of affordable homes in the overall residential realty market is shrinking rapidly."

He said rate hikes totalling 2.50 percentage points by the Reserve Bank of India in a short period of less than a year have had some impact on the consumer’s psyche and the market did see some degree of postponement in purchases when the cycle was underway.

According to property consultant Anarock, real estate developers are now launching fewer affordable housing units and more mid and luxury-segment projects. The share of affordable homes in the total new supply during Q2FY24 fell to 18% in seven major cities, from 42% in 2018. In the total launches, too, the share of affordable homes has been falling steadily since 2018. The urban labour market has not witnessed a surge post-pandemic and that dealt another major blow to the affordable housing segment.

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.