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May 14, 2024

Shriram Finance Shifts Focus to Core Operations with Strategic Sale

Shriram Finance Limited (SFL) has decided to divest its housing finance business to concentrate on its primary operations and secure growth capital, according to Executive Vice-Chairman Umesh Revankar. The sale of its housing finance subsidiary, Shriram Housing Finance Limited (SHFL), to the global growth investor Warburg Pincus is a strategic move aimed at sharpening SFL’s focus on its core competencies and fostering expansion in its key areas of operation.

On Monday, SFL’s board approved the sale of SHFL to Warburg Pincus for a consideration of Rs 4,630 crore. This transaction is anticipated to close by the end of the current fiscal year, subject to regulatory approvals from the Reserve Bank of India (RBI), the Competition Commission of India, and the National Housing Bank.

Revankar highlighted that SHFL has demonstrated robust growth, achieving a compound annual growth rate (CAGR) exceeding 50% over the past four years. Despite this impressive performance, SFL has opted to divest from the housing finance sector to better allocate resources and attention to its core businesses. “We are highly competent in vehicle finance and are industry leaders. Our objective now is to expand our small and medium-sized enterprise (SME) business. The housing finance sector demands significant focus, which we believe we cannot adequately provide while scaling our core operations,” Revankar stated.

Warburg Pincus will acquire SHFL through its affiliate Mango Crest Investment from all existing shareholders, including Valiant Partners LP (Valiant), which holds a minority stake. Post-acquisition, Warburg Pincus plans to inject around Rs 1,000 crore into SHFL to support its business expansion strategies.

The sale will also enhance SFL’s capital adequacy, positioning it better to serve its diverse clientele across India. SFL, a leading non-banking financial company (NBFC), caters to over 8.4 million customers, providing commercial-vehicle loans, two-wheeler loans, and financing for micro, small, and medium enterprises (MSMEs).

Revankar emphasized the strategic rationale behind this move: “Managing multiple business lines requires bandwidth. By focusing on our strengths in vehicle financing and SME lending, we can ensure better service and growth. The infusion of capital from the sale will be redirected into our main operations, reinforcing our leadership in these sectors.”

Following the completion of the transaction, SHFL will function as an independent entity under the leadership of its current management team, headed by Ravi Subramanian, Managing Director and CEO. This independence is expected to allow SHFL to continue its growth trajectory, particularly in the affordable housing segment where it has been a significant player.

Revankar expressed confidence that this strategic realignment will benefit both SFL and SHFL. “Having a dedicated partner like Warburg Pincus at this stage will enable SHFL to focus more intently on its growth and development. We believe this separation will foster a more concentrated effort on expanding the housing finance business.”

In summary, Shriram Finance’s divestiture of its housing finance arm represents a calculated effort to streamline its operations and bolster its core business segments. With Warburg Pincus’s involvement and planned capital infusion, SHFL is poised for continued growth, while SFL can channel its resources and expertise into reinforcing its leadership in vehicle financing and expanding its SME business. This strategic move reflects Shriram Finance’s commitment to optimizing its business structure for sustained growth and profitability.

Jhumpa Lahiri

Jhumpa Lahiri

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