What Piramal’s stake sale in STFC tells us about NBFCs

ET Intelligence Group: The stake sale by Piramal Enterprises in Shriram Transport Finance Company (STFC) points to the changing landscape for non-banking finance companies (NBFCs) in the wake of a hardening regulatory stance by the central bank.

While the development does not affect the fundamentals of STFC much in the medium term, it reflects the growing unattractiveness of NBFCs with higher exposure to non-retail borrowers, given the liquidity crunch and asset quality issues.

Two-thirds of STFC’s total assets under management (AUM) of over Rs 1 lakh crore are in the commercial vehicles segment.


According to Deepak Jasani, head of retail research at HDFC Securities, Piramal Enterprises earned less than 6 per cent return excluding dividends on the investment of over Rs 1,640 crore made in 2013. “This acquisition was made with a view to obtaining a bank licence, but Shriram group did not succeed, and the talks to merge with IDFC Bank also did not succeed,” he said.

Piramal Group sold its nearly 10 per cent stake in STFC on Monday for approximately Rs 2,305 crore, according to reports.

Some experts that ET spoke to cited Piramal Group’s need for liquidity as a major reason for the stake sale. Realty and the funding of real estate and other related projects are the two major activities of the group. The real estate sector has been facing sluggish demand and weak price trends, while low liquidity has affected the funding side of the business.

“This sale will give them some much needed liquidity and enable them to earn higher returns or take advantage of the current turmoil in the financial markets to make some cheap acquisitions of distressed companies,” said Jasani.

According to sector trackers, the Piramal Group may look forward to increase exposure to retail loan portfolios. The Piramal Group also owns 20 per cent in Shriram Capital, an unlisted holding company of the Shriram group and another 10 per cent in Shriram City Union Finance.

Piramal may raise more funds by divesting these stakes in future.

Over the past 12 months, STFC’s stock has lost 30.6 per cent. At Monday’s closing price of Rs 1,018 on the BSE, the company’s price-book (P/B) multiple was 1.5 compared with 2.5 a year ago.

Piramal’s stake sale is less likely to affect its business fundamentals.

“Currently, we have a “reduce” call on the stock. The latest development does not affect our call given the softness in the commercial vehicles segment and the overhang of the possible merger with City Union,” said Ritika Dua, lead-diversified financials, Elara Securities. She believes that any near term turnaround for the stock looks difficult.