Shriram Finance Share Price Up by 5% After Housing Unit Sale; Brokerages Predict Minimal Impact

Shriram Finance witnessed a surge in its shares climbing over 5% to reach ₹2,419 per share on May 14. This uptick came after the company's board gave the green light for the complete sale of its housing finance arm Shriram Housing Finance or SHFL to the US private equity firm Warburg Pincus for ₹4,630 crore.

Brokerages Offer Varied Perspectives

Despite the positive market response brokerages presented a mixed outlook on the deal considering its impact on the non bank lender. Morgan Stanley expressed confidence in Shriram Finance maintaining an overweight call with a target price of ₹3,050 per share. They suggested that the sale of the housing finance subsidiary would not affect the company's valuation as it comprises only 4% of their Sum of the Parts or SOTP valuation for Shriram Finance.

On the other hand CLSA analysts anticipated a profit & loss gain of ₹2,350 crore from the transaction equivalent to 3% of the company's market capitalization. However they pointed out that Warburg Pincus valued SHFL at lower multiples compared to industry peers. Despite this, CLSA maintained an outperform call setting a target price of ₹2,800 per share.

Kotak Securities remained bullish on Shriram Finance upholding its buy call with a target price of ₹3,000 per share. They anticipated 3 to 4% augmentation in book value following the sale of Shriram Housing.

Transaction Details

Warburg Pincus is set to acquire SHFL through its affiliate Mango Crest Investment from all sellers including Shriram Finance and Valiant Capital Management. The deal valued at Rs 4,630 crore for SHFL's stocks and convertible instruments, awaits regulatory clearance. Shriram Finance currently holds 84.82% stake in SHFL with Valiant Capital Management owning 14.94%.

JM Financial, Barclays and Avendus played pivotal roles as financial advisors to Shriram Finance, Shriram Housing Finance and Valiant Capital Management throughout the transaction process.

Financial Performance

In the January-March quarter of fiscal year 2024 Shriram Finance reported robust financial figures with consolidated net profit surging 57% year on year to ₹2,021 crore. Total income also witnessed a significant uptick, rising 24% YoY to ₹9,918 crore.

The company demonstrated improvements in asset quality with gross non performing assets or NPAs dropping to 5.45% in Q4FY24 from 6.21% in the corresponding period of the previous year. Similarly net NPAs stood at 2.7% in Q4FY24 down from 3.19% in Q4FY23.

To Summarize

The sale of Shriram Housing Finance marks a milestone for Shriram Finance reflecting strategic restructuring aimed at enhancing shareholder value. While brokerages offer differing perspectives on the deal, the company's strong financial performance and improving asset quality highlights its resilience in the market. With regulatory approvals pending, stakeholders await the completion of this landmark transaction poised to reshape the landscape of the housing finance sector.