Brokerages perceive no discernible effect from Shriram financing's 5% increase in sales of its home financing business

Brokerages perceive no discernible effect from Shriram financing's 5% increase in sales of its home financing business

Through its subsidiary Mango Crest Investment, Warburg Pincus will purchase the interest from each seller. Shriram Finance's shares have increased by more than 10% so far this year.

On May 14, when the board authorized the entire sale of the company's home finance subsidiary, Shriram home Finance (SHFL), to US private equity firm Warburg Pincus for Rs 4,630 crore, shares of Shriram Finance shot up more than 5% to Rs 2,419 per share. Brokerages disagreed on this biggest M&A transaction in the home financing industry, considering how it would affect non-bank lenders.

A "overweight" call was released by Morgan Stanley on Shriram Finance, with a target price of Rs 3,050 per share. They think there would be no discernible effect of the sale on the company's worth. "The housing finance subsidiary is just 4 percent of our SOTP valuation for Shriram Finance," they said.

But according to CLSA analysts, this deal should result in a profit and loss gain of Rs 2,350 crore, or 3% of the market capitalization.

However, they also emphasized that Warburg placed a lesser value on the firm than rivals including Aavas Financiers, Home First Finance, and Aptus, valuing it at 2.4x price-to-book (PB) and 21x price-to-earnings (PE). A 'outperform' call was released by the brokerage company, with a target price of Rs 2,800 per share.

Kotak Securities, on the other hand, maintained its 'buy' call with a target price of Rs 3,000. The sale of Shriram Housing is anticipated to increase book value by 3–4%. "We estimate that the deal's worth is somewhat greater than the Rs 44 per share assigned in SOTP. Strong asset quality keeps the core business on course, they think.

Through its subsidiary Mango Crest Investment, Warburg Pincus will purchase the interest from each seller. Subject to regulatory clearances, the proposed deal is valued at Rs 4,630 crore for SHFL's stock and convertible securities.

84.82 percent of Shriram Housing Finance is owned by Shriram Finance, while Valiant Capital Management, a private equity firm located in San Francisco, California, controls 14.94 percent of the company. Valiant will also totally give up its stock holding to Warburg Pincus as part of this deal.

SFL, SHFL, and Valiant received financial advice from JM Financial, Barclays, and Avendus.

During the January-March quarter (Q4FY24), overall revenue for Shriram Finance increased by 24% YoY to Rs 9,918 crore, while the company's consolidated net profit increased by 57% to Rs 2,021 crore.

Gross non-performing asset (NPA) for the firm increased during the quarter from 6.21 percent in Q4FY24 to 5.45 percent in Q4FY24. In Q4FY24, its net non-performing asset (NPA) was 2.7%, compared to 3.1% in Q4FY23.