Shriram Finance is aiming to complete the sale of its affordable housing finance business by the end of the current financial year, and will use the proceeds to strengthen its net worth and capital adequacy, Executive Vice-Chairman Umesh Revankar told businessline.

“This financial year, we would like to see the deal getting closed,” Revankar said, adding that the decision for the sale was taken to focus on Shriram Finance’s core business.

“Housing is a serious business, it requires a lot of attention and support and also capital. Our core business is also growing and requires capital. So, it was about taking a call on where we want to focus,” he said. Shriram Housing Finance’s AUM has grown at a CAGR of 56 per cent over the last four years.

Strategic divestment

Shriram Finance, on May 13, approved the sale of Shriram Housing Finance to PE firm Warburg Pincus’s affiliate company Mango Crest Investment. The proposed transaction is valued at ₹4,630 crore for equity and convertible instruments of Shriram Housing. Shriram Finance’s current PE partner Valiant Partners L P (Valiant), Mauritius will also sell its minority stake to Warbug Pincus.

The NBFC considered all options, including partial stake sale, but eventually decided on divesting its entire stake in the subsidiary to enable the housing business to grow on its own while allowing Shriram Finance to focus on the core business by monetising this investment at the right time.

“When you sell partially, the new partner may not actively participate. So the deep knowledge that the partner has will not play into the business. Two partners is always confusing because management needs clarity and we thought a single investor/promoter will help the management much better,” Revankar said.

The profit from the sale of the business is estimated to be ₹1,360 crore which the company will utilise to improve its net worth and capital adequacy ratio.

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“The capital adequacy will improve by nearly 1 per cent, which will also help us focus on and grow our core business,” he said, adding that it also have a small profitability impact on the consolidated balance sheet in terms of return ratios.

“We are looking at an AUM growth of 15 per cent. The focus is on building the bottomline as we would like to see the profitability of the business improve further. We would also focus on digital process innovation and opex improvement, all of which will also help us improve the bottomline,” Revankar said adding that improving the quality of the book is also one of the agendas.

AUM growth in FY25 is expected to be driven by passenger vehicle and SME segments which are growing and are expected to continue to grow higher than other business verticals. Shriram Finance has over 84 lakh customers and offers commercial vehicle loans, two-wheeler loans, and MSME financing.

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