Shriram Finance Limited

Shriram Finance announced a strategic partnership with MUFG, one of the world's top bankers, involving a US$4.4 billion capital infusion for a 20% stake. This investment is expected to provide long-term growth capital and leverage MUFG's experience in Asian markets, including their digital platform capabilities. The proposal has been approved by both boards, and the company has initiated the EGM process for this significant equity infusion.

Following the 2022 merger of Shriram Transport Finance and Shriram City Union Finance, the company has successfully implemented a multiproduct strategy across its 3,225 branches, achieving a growth rate of 16-17%. With the new capital, the company aims to accelerate growth to 18-20%, leveraging India's strong GDP growth (8%+) and increasing credit demand. The multiproduct strategy has been activated in most branches, enhancing reach and offerings.

The capital infusion is projected to improve ROA from the current 2.8% to 3.6% over time^⏳. While ROE is expected to temporarily dip to 13.5% next year due to the additional capital, it is targeted to recover to the current 31% within five years. The company anticipates a 100 basis points reduction in borrowing costs over two years and a 10-20 basis points improvement in credit costs, leading to a steady-state debt-to-equity leverage of 4.5 times.

The company will continue its focus on small vehicle operators, machinery owners, and agricultural households, with vehicles constituting 70% of its book. They aim to double their new vehicle market share from 3% in the next three years. While maintaining an 80-20 vehicle to non-vehicle mix, gold finance, currently 5% of the book, is expected to increase by 2%. Geographically, the company will expand its reach in the north, central, and east, converting rural centers into branches, while remaining focused on semi-urban and rural markets.

A non-compete clause ensures that the promoter group (SOT) will not start similar businesses, a condition for the capital infusion. MUFG personnel will join at a non-senior management level (number two or three) to facilitate information flow, digital platform adoption, and mutual learning from experiences in India and other Asian countries, rather than taking up KMP roles or driving acquisitions. The company clarified it is not looking for inordinate growth through M&A.

The transaction is expected to be completed within two to three months, subject to RBI and CCI approvals. The company hopes to finalize it within the current financial year, or by April at the latest, with the US$4.4 billion capital coming in as a single shot. The EGM date is the 14th, after which regulatory applications will be made.