Shares of Shriram Finance Ltd surged more than 5 per cent during the trading session on Tuesday after the non-banking finance company (NBFC) approved the proposal for disinvestment/ sale of its entire stake in Shriram Housing Finance (SHFL), high value debt-listed non-material subsidiary to Warburg Pincus.
Warburg Pincus will be acquiring the stake in the housing finance entity through its affiliate Mango Crest Investment for Rs 4,630 crore. Shriram Finance, which owns 83.78 per cent stake in Shriram Housing Finance, shall receive Rs 3,909 crore from the stake sale along with certain additional amounts based on occurrence of identified events.
The proposed transaction is subject to receipt of applicable approvals from regulatory authorities and fulfilment of other customary conditions. The expected time of completion of the transaction is February 7, 2025, said the company in the exchange filing with the bourses.
Shriram Housing Finance had a revenue of Rs 1,429.56 crore for the financial year ended March 31, 2024, which is 3.93 per cent of Shriram Finance's core income. The housing finance arm has a net worth of Rs 1,923.73 crore, which is only 0.76 per cent of the Nifty50 constituent's net worth.
Following the announcement, shares of Shriram Finance surged more than 5.17 per cent to Rs 2,419 on Tuesday, commanding a total market capitalization of more than Rs 90,000 crore. The NBFC counter had settled at Rs 2,300.90 in the previous trading session on Monday.
The deal has been inked between the two parties at a sale price of Rs 96 per share. However, the shadow lender was expecting to sell the stake at Rs 140 apiece earlier. However, market participants believe that the deal has been made on a reasonable valuation.
Shriram Finance proposes to sell the entire stake in its housing finance business to Warburg for 2.4 times FY2024 book, said Kotak Institutional Equities. "The gains will augment its FY24 net worth by 4 per cent. Valuation for the deal is marginally higher than Rs 44 per share ascribed in our SoTP," it said.
The transaction is finally getting done at a marginal premium to fair value estimates. While its RoE was lower than most peers under coverage, AUM growth was much higher at 71 per cent, raising some anxieties, said Kotak. "We remain bullish on the core business," it added with a 'buy' rating and a fair value of Rs 3,000 on the stock.