Shriram Finance hits 52-week high on CCI nod to ₹4,630-cr deal with Warburg Pincus

India's competition regulator has approved the acquisition of shareholding in Shriram Housing Finance Ltd (SHFL) by Mango Crest Investment Ltd, which is affiliated with U.S.-based private equity firm Warburg Pincus. 

The U.S. private equity firm announced the acquisition of Shriram Housing Finance from non-bank lender Shriram Finance and minority shareholder Valiant Partners for ₹4,630 crore in May 2024. "The Competition Commission of India (CCI) has approved the acquisition of shareholding in Shriram Housing Finance Limited by Mango Crest Investment Ltd," a CCI statement says.

Mango Crest Investment Ltd. is a company incorporated in the Republic of Mauritius. The principal business activity of Mango Crest is undertaking investment holding activities, while Shriram Housing Finance is a housing finance company registered with the National Housing Bank.

Reacting to the development, shares of Shriram Finance Ltd surged 0.50% in the early morning trade to hit its one-year high at ₹3,177.40 on the BSE. At the current share price, the non-banking finance company's m-cap stands at ₹1.19 lakh crore. The scrip has seen a 72.54% surge in the past year, with a year-to-date gain of 55.21%. In the past six months, the share has surged 34.98%.

Shriram Finance holds a controlling stake in SHFL, while private equity firm Valiant Partners L.P., Mauritius, holds the remaining ownership. As a part of the transaction, Valiant will also completely divest its equity stake to Warburg Pincus. SFL will receive ₹3,900 cr from the sale of its investment in the subsidiary, resulting in an increase in CRAR (capital to risk (weighted) assets ratio (CRAR)) by around 80 bps.

Shriram Finance has assets under management (AUM) worth ₹2.24 lakh crore. It serves over 84 lakh customers across India offering commercial vehicle loans, two-wheeler loans, and MSME financing. It has been reporting a robust AUM growth rate of 56% CAGR over the last four-year period.

Following the transaction, Shriram Housing Finance will operate as a standalone entity, continuing to enhance value for its stakeholders as it looks to provide housing finance solutions to the under-served population of the country. The existing management team of Shriram Housing Finance led by Ravi Subramanian, managing director and CEO, will continue to lead the business. Shriram Finance's Q1 FY25 profit surged 19% to ₹2,022.8 crore compared to ₹1,705 crore in the year-ago period. The income surged to ₹9,609.7 crore against ₹9,497 crore in the year-ago period.

Notably, asset quality improved in Q1, with GS-3 (loans overdue for over 90 days) falling to 5.4% vs 5.5% QoQ. "Considering strong AUM growth at 4% QoQ, we believe it may surpass its FY25 growth guidance of 15% YoY. With likely operating leverage over the next 4-6 quarters, steady NIM and credit costs at ~9% and 2% in FY24-26 would keep RoE strong at 16-18%. Maintain BUY with a revised TP of INR 3,500 (earlier INR 2,930), as we now value the stock at 2.2x (earlier 1.8x) Sep’25E PBV on improved outlook," ICICI Securities said in a note earlier.