The board of Shriram Group has approved the merger of Shriram Capital and Shriram City Union Finance with Shriram Transport Finance. The merged entity will be known as Shriram Finance
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Shriram Transport Finance Corporation share price fell over 6 percent intraday on December 14, a day after the board gave the go-ahead to the merger of lending subsidiaries.
The board of directors of Shriram Group on December 13 approved the long-awaited merger of its lending subsidiaries Shriram Capital (SCL) and Shriram City Union Finance (SCUF) with Shriram Transport Finance (STFC). The merged entity would be known as Shriram Finance.
“The merger is subject to the approval of shareholders of SCL, SCUF and STFC. Approvals from the RBI, CCI, IRDA, NHB, NCLT and other such other regulators may be required,” the company said in a regulatory filing.
Shriram Transport will issue 1.55 shares for every share of SCUF and 0.09783305 share for every share of SCL. This translates into SCL shareholders getting one share of STFC for every share held by SCL in STFC and, while SCL shareholders will get 1.55 STFC shares for every share of SCUF held by SCL, the statement said.
The company believes that the merger would help it bring together all its lending products—commercial vehicles, two-wheeler loans, gold loan, personal loan, auto loan and small enterprise finance—under a single roof, creating a financial powerhouse with the potential to be a market leader in all the products and consumer segments it operates in.
The merged entity would have a combined AUM of over Rs 1,50,000 crore, over two crore customers served till date and a distribution network of more than 3,500 branches. All of these would be serviced by a team of over 50,000 employees.
The stock was trading at Rs 1,387.05, down Rs 89.20, or 6.04 percent, at 12.49 pm. It has touched an intraday high of Rs 1,465.90 and an intraday low of Rs 1,370.70.
The scrip was trading with volumes of 51,700 shares against its five-day average of 35,958 shares, an increase of 43.78 percent.
What brokerages are saying
Brokerage firm CLSA has an “outperform” call on the stock with the target at Rs 1,600 a share, an upside of 15 percent from the current level.
It is of the view that there will be no meaningful financial impact on the company from the merger. “The lending business would make the merged company one of the largest retail lenders. Pro-forma merged company numbers indicate 1-4 percent EPS dilution and 3 percent BVPS dilution,” it said.
JP Morgan has an “overweight” call with the target at Rs 1,550 a share, an upside of 11 percent from the current market price. It believes that the merger would result in a slight dilution but removes a large overhang with synergy benefits at 10 percent of net income.
“Pro-forma BPS dilution is 2 percent for the company based on September 2021 net worth. Technical overhang of PE investors selling out to remain post-merger,” it said.
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Jefferies, on the other hand, has an “underperform” call on the stock with the target at Rs 1,250 a share, a downside of 11 percent from the current market price.
“The positives are partly diluted by 15 percent premium paid to acquire Shriram City’s stake. Any overhang of stock supply from non-promoters needs to be watched,” it said.
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