Ajay Piramal to buy 10% in Shriram Capital for Rs 700 crore

MUMBAI: Billionaire Ajay Piramal will purchase a 10% stake in Shriram Capital, the holding company of Shriram Group's financial services business and an aspirant for a banking licence, for a consideration expected to be between Rs 650 crore and Rs 700 crore.


"We have reached in-principle agreement to sell a 10% stake in Shriram Capital to Ajay Piramal," said R Thyagarajan, founder of the Shriram Group. "Both the companies are working out modalities for the deal."

"We are looking at a valuation of Rs 6,500 crore, in which case Piramal will have to pay around 650 crore to purchase the minority stake," said a person familiar with the deal.

Shriram Capital was valued at Rs 5,000 crore when TPG Capital purchased a 11% stake in 2009, implying an almost 20% rise in valuation if the deal is struck in the range of Rs 650-700 per share.

Eyeing long-term partnership

Thyagarajan declined comment on valuation.

"We have gelled well and the last meeting took place a fortnight ago," Thyagarajan said. "We are not considering him as an investor, but (we) are in for a long-term strategic alliance."

"There are two options for Piramal to purchase a stake in the company," Thyagarajan said. "He can buy from TPG Capital or we can issue fresh shares to him." The deal will provide Piramal Enterprises access to businesses spanning transport finance, consumer finance, asset management as well as life and general insurance.

Piramal will be the largest Indian shareholder in Shriram Capital. American private equity company TPG Capital owns 11% stake in the company while South African financial services group Sanlam owns 26%. The rest is owned by Shriram Ownership Trust for the benefit of Shriram Group of companies.

Piramal has not applied for a banking licence while Shriram Capital has put in an application with the rider that it will not transfer its truck finance business to the new entity.

In May, Piramal purchased a 9.9% stake in Shriram Group's truck finance company, India's largest by assets and number of trucks financed, for Rs 1,652 crore from PE fund TPG Capital. The stake was bought via block trades on the stock market. The Piramal Enterprises spokeswoman did not respond to a questionnaire from ET.

The rationale to partner with Piramal was two-fold, Thyagarajan had previously said. "One, ours is not a family-owned or controlled group, where the wealth will be passed on to the next generation; and two, we have always grown through partnership, be it with PE funds or partners such as Sanlam," Thyagarajan had told ET in an earlier interaction. "Strategically, it means that we are now increasing our commitment in the financial services space," Ajay Piramal told ET NOW, soon after he purchased a 9.9% stake in Shriram Transport Finance Ltd.

"As you perhaps know, we have already started an NBFC, where we were lending to real estate and education. In addition, we had also made some strategic investments in infrastructure projects. So, this is a continuation of that strategy, and as far as Shriram Transport is concerned, it is a very sound company. It also gives us an understanding of the retail segment, the priority sector and (we) would like to build a long-term partnership," he added.

Some investment bankers say Piramal is buying into India's growth story. "If you believe in the India story, you have to be in banking," says Mickey Doshi, country head and managing director at Credit Suisse.

"Thyagarajan has a unique business model with the wealth being transferred to his employees," said the MD of a PE fund that invested in the Shriram Group. He needs a successor to run the business, the person added. "Piramal can easily achieve his aspiration to enter the financial services business with loads of cash in hand," said the PE fund honcho, who cannot be quoted as his firm does not allow employees to speak to the media about investee companies. Thyagarajan, for his part, said the relationship with Piramal would be collaborative. "All our businesses are managed by professionals," he said, emphasising that Piramal (57) was not a successor.