Warburg Pincus and Bain Capital are leading the race to acquire Shriram Housing Finance Ltd (SHFL), valued at INR 6,500 crore. However, bids from both private equity giants reportedly fall below expectations, ranging from INR 5,300-5,500 crore. This sale represents Shriram Finance's strategic move to leverage SHFL's growth in affordable housing. With the housing finance sector witnessing positive trends and SHFL's potential for further expansion, investors are eyeing the company's scalable platform. The final outcome hinges on negotiations that balance price and growth strategy aligned with SHFL's strengths in affordable housing.
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The race to acquire Shriram Housing Finance Ltd (SHFL), a subsidiary of Chennai-based Shriram Finance, is intensifying. Private equity giants Warburg Pincus and Bain Capital are the frontrunners in this closely contested battle. Binding bids were submitted last week, and negotiations are ongoing to secure the best possible deal.
A key hurdle in finalizing the sale is reaching an agreement on valuation. Shriram Finance values SHFL at INR 6,500 crore, including a control premium. However, bids from Warburg Pincus and Bain Capital reportedly fall within the INR 5,300-5,500 crore range.
This sale represents a strategic move for Shriram Finance. The company aims to capitalize on SHFL's significant growth over the past few years, particularly in the affordable housing segment. Industry experts believe the timing is perfect due to the rising demand for homeownership post-pandemic. Government initiatives promoting affordable housing further fuel this demand, attracting major players like LIC Housing Finance and PNB Housing Finance for a market share of INR 14,000 crore to INR 20,000 crore by FY25.
The Indian housing finance sector is witnessing a positive trend. Housing finance companies (HFCs) are experiencing improved asset quality, profitability, and loan growth, making them attractive to investors. Blackstone-owned Aadhar HFC's recent IPO filing for around INR 5,000 crore reflects this growing investor interest.
Both Warburg Pincus and Bain Capital have experience in the financial services sector. However, SHFL presents a unique opportunity. It focuses on affordable housing loans in Tier 2 and 3 cities, a segment often overlooked by traditional banks. This targeted approach caters to the rising demand for affordable housing units in urbanizing areas with a growing migrant population.
SHFL's potential for further expansion is another key attraction for investors. The company's tangible net worth is expected to rise from INR 1,298 crore in FY23 to INR 2,000 crore in FY24. Management estimates assets under management to reach INR 14,000 crore by FY24 and INR 20,000 crore by FY25, achieved through organic growth and strategic acquisitions. Investors are likely drawn to this scalable platform with the potential for further expansion.
While housing finance remains a core focus, SHFL is diversifying its loan portfolio. Products like loans against property are being offered alongside a small portion of construction finance, contributing to the 64% share of housing finance in the company's portfolio (as of FY23). Additionally, the company prioritizes the self-employed borrower, with 75% of its customers having a credit bureau score of more than 700. It also caters to existing customers of its parent company, Shriram Finance.
With negotiations progressing, the battle for SHFL is nearing its conclusion. The final outcome will depend on which bidder can offer the most compelling combination of price and a growth strategy that capitalizes on SHFL's strengths in the affordable housing market.
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