Private equity giants Bain Capital, Advent International, and CVC Capital, along with Warburg Pincus, vie for Shriram Housing Finance Ltd (SHFL), a subsidiary of Chennai's Shriram Finance. Initial offers fell short of Shriram's INR 6,500 crore valuation, prompting renewed talks after last year's unsuccessful stake sale. SHFL's impressive growth has driven the need for capital infusion, aiming to reach INR 20,000 crore assets under management by FY25. The company's focus on affordable housing attracted investor interest amidst India's booming market. The potential acquisition signals a transformative shift in India's housing finance landscape, offering promising opportunities for growth and innovation.
Private equity heavyweights Bain Capital, Advent International, and CVC Capital are competing to acquire Shriram Home Finance Ltd (SHFL), a subsidiary of Chennai-based non-banking finance firm Shriram Financing, to get access to India's booming home financing market. Warburg Pincus has also joined the race alongside them, indicating a competitive landscape for the potential acquisition.
These firms have been shortlisted following the submission of non-binding bids in December, with due diligence currently underway. The parent company, Shriram Finance, primarily focused on commercial vehicle financing, holds an 84.82% stake in SHFL, which caters to the affordable housing segment. San Francisco-based PE Valiant Capital Management owns the remaining stake.
Despite Shriram Finance's expectation of a valuation of around INR 6,500 crore for SHFL, initial offers have ranged between INR 5,000-5,500 crore, according to sources. This valuation discrepancy shows the complexities of the negotiation process.
Last year's unsuccessful attempt to sell a stake prompted Shriram to revive talks, appointing Avendus, Barclays, and JM Financial as advisers for the sale. While negotiations are ongoing, it's anticipated that Shriram and Valiant may retain a minority stake, with the acquirer assuming majority control. Shriram Housing Finance has demonstrated high growth over the past four years, necessitating capital infusion to fuel further expansion. The company is exploring both internal and external avenues to secure funding for its growth initiatives. The extent of the stake sale will be contingent upon the valuation the company ultimately commands. In parallel developments, Blackstone-owned Aadhar HFC recently refiled its draft papers for an IPO to raise approximately INR 5,000 crore, signaling heightened investor interest in India's affordable housing market.
Financially, SHFL reported a 69% year-on-year increase in profit after tax for the December quarter, reaching INR 61.4 crore. Its assets under management as of December 31 rose to INR 12,025 crore, with disbursals totaling INR 5,289 crore over the nine months. Looking ahead, SHFL aims to support its assets under management to INR 20,000 crore by the end of FY25 through organic growth and strategic acquisitions. This growth trend, coupled with the allure of the housing finance platform, presents an attractive proposition for potential investors.
As per Care Ratings' calculations, housing finance comprises 64% of SHFL's portfolio, with the remainder allocated to non-housing sectors. The company's lending operations, which commenced in December 2011, have gained momentum, particularly post-January 2019, catering to the housing finance needs of self-employed individuals. The potential involvement of co-investors, including pension and sovereign wealth funds, underscores the broader investor appetite for direct opportunities in India's financial landscape.
Beyond the acquisition, the Shriram Group is diversifying its offerings, venturing into asset reconstruction, and launching the financial super app 'Shriram One,' signaling its commitment to innovation and digital transformation in the financial sector. With negotiations underway and investor interest at peak levels, the potential acquisition of SHFL promises to reshape India's housing finance landscape, ushering in a new era of growth and opportunity.
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