Ajay Piramal eyes 18% growth on Shriram Capital investment

Ajay Piramal is back in the news. He earned around Rs 3,036 crore last week selling his entire stake in Vodafone India Ltd to the parent company Vodafone Plc. That amounts to Rs 670 in profit per share. On Thursday, he invested over Rs 2,000 crore in Shriram Capital Ltd ., the holding company of the Shriram Group's financial services and insurance entities.

"The financial services space typically grows at about 1.5 times the economy, and if we take inflation into account, we are looking at about 17-18 per cent growth in the company," Ajay Piramal told Business Today over phone. He believes that the economy will grow at about eight per cent.

When he sold the Vodafone stake, Piramal had said in a release to the stock exchanges that "The equity purchase in Vodafone was consistent with our objective of making investments that offer opportunity to generate attractive long term return on equity".

While it might look and sound obvious, Piramal denies that he is investing in sectors, focusing instead on Shriram as a company, its cultural similarities to the Piramal Group, and its businesses. "Shriram Group is where we are going to invest. We have two board seats, and we will provide strategic inputs to the company," he further said.

His idea of investments that generate returns may just have changed. While he bought into Vodafone India in 2012, after selling his healthcare company to multinational Abbott in 2010, this move into Shriram Capital comes at a time when the latest blow to telecommunications companies has come in form of the ruling from the Supreme Court allowing the Comptroller and Auditor General to audit telecommunications companies to ascertain whether the government is getting its dues.

"It is likely to add to the complexity of the operating environment of the telcos," Hemant Joshi, Partner, Deloitte Haskins & Sells said over email, "This ruling would add to the perception that India is a difficult country to do business in and there is more government than warranted."

In comparison, investment environment in financial services is still benign.  

Piramal has stayed away from applying for a banking licence. But Shriram's business model is robust, and has brought the company to the forefront of the financial services business in India. It has a slew of businesses including financing new and used trucks, and has been piloting various innovative financial and insurance products over the last year or so.

In September 2013, Shriram Transport Finance, one of Shriram Capital's core businesses, reported consolidated profits of Rs 351.93 crore on revenues of Rs 2100.44 crore. In September 2012, it reported Rs 362.63 crore on revenues of Rs 1704.26 crore. In December 2013, it reported net profits of Rs 324.85 crore on revenues of Rs 2196.84 crore.

The Shriram stock has climbed from Rs 557.1 six months back to close at Rs 746.90 at on Thursday.