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Business News/ Markets / Stock Markets/  What Shriram Transport Finance-Shriram City Union Finance's merger means for the stock?

What Shriram Transport Finance-Shriram City Union Finance's merger means for the stock?

Shriram Transport Finance has got shareholders, creditors nod for merger


Shriram Transport Finance Company Ltd (STFC) on Wednesday said it has received approval from its equity shareholders and creditors for its merger with Shriram City Union Finance (SCUF). Chennai-based diversified financial services company Shriram Group, in December last year, announced the merger of Shriram Capital Ltd and Shriram City Union Finance with Shriram Transport Finance. 

“With Shriram Transport's shareholder approval, STFC-SCUF merger seems on track for Oct 2022 completion. Merger may have synergy benefits, but the extent these can be realized is uncertain. Despite cyclical tailwinds in Used CV, SHTF's large base should constrain its AUM growth. Normalization of credit cost should lift FY23 earnings, but EPS growth should taper off thereafter. Risk of potential equity supply from shareholders of merged entity can be an overhang," said Jefferies in a note.

The global brokerage expects integration to be smooth. HR integration is largely done and tech platforms have been aligned. Shriram is targeting c.10% synergy gains mainly through cross-sell gains and lower funding cost at SCUF (SCUF IN, NC) due to better credit rating.

While there could be some synergy benefits, Jefferies sees execution challenges. Branch employees will need to be trained/ reskilled to cross-sell/ underwrite new products. Given disparate products, cross-sell potential of certain products (like HCV) may be low.

“We trim our FY23-25E EPS by 6-8% as we trim our margin forecasts. Maintain underperform on Shriram Transport Finance with price target of 990," it said.

The merged entity will be known as Shriram Finance Ltd and it will be the largest retail finance non-banking finance company (NBFC) in the country.

"With the shareholders' and creditors vote out of the way, only a few more steps remain before the deal can close. We are near the starting line of a new era for Shriram where we are building a fairly diversified loan book, which can withstand the test of economic and credit cycles from a growth and asset quality paradigm," STFC's Vice Chairman and Managing Director Umesh Revankar said in the release.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Published: 07 Jul 2022, 08:53 AM IST
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