After the merger, Shriram Housing Finance (SHFL) will become a subsidiary of Shriram Finance.
The proposed reorganization of the corporate structure of Shriram Group is expected to accelerate the growth of Shriram Housing Finance with a stronger distribution network and lower cost of borrowing, as the credit rating of the housing finance company is likely. to be improved.
In accordance with the proposed Composite Arrangement and Merger Scheme, involving various entities of the Shriram Group, Shriram Capital (SCL) and Shriram City Union Finance (SCUF) will merge into Shriram Transport Finance Corporation (STFC) and the merged entity will be called Shriram Finance. After the merger, Shriram Housing Finance (SHFL) will become a subsidiary of Shriram Finance.
“We expect that after the merger, SHFL’s growth rate will accelerate to over 40% and stay there for a few years. The merger unlocks the immense distribution strength of the two merged entities so that SHFL can continue, ”said Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance. Currently, SHFL is a subsidiary of Shriram City Union Finance (SCUF).
“Previously, we had the opportunity to cross-sell home loans through the 900 branches of Shriram City Union Finance. Now we will also be able to cross-sell through the 2,600 Shriram Transport branches. Shriram Housing Finance is already growing twice as fast as the housing finance industry and will soon become the top 5 affordable housing finance companies in India by March 2022, ”Subramanian told FE.
The respective boards of directors of STFC, SCUF and SCL approved the merger proposal on December 13. The group will now apply to the National Company Law Tribunal (NCLT), various regulators and shareholders for their approval. The merger is expected to take 9-10 months to complete.
Shriram Housing Finance does not anticipate any change in the way we work after the merger, however. She started a “Griha Poorti” cross-selling initiative through the Shriram City branch network, which has seen early success. “As part of this program, we welcome customers whose credit is tested by companies in our group. This helps us to perform granular activities at a significantly lower acquisition cost. We expect the merger to accelerate this initiative, ”said Subramanian.
After the merger was announced, the credit rating of Shriram Housing Finance was revised to AA / Positive from Stable by India Ratings. Crisil and CARE have put its ‘AA’ rating on credit watch with positive implications. Subramanian said this is a very positive development for SHFL, expecting the rating to be upgraded due to the superior credit quality and financial performance after the merger and the fact that its parent company Shriram Finance Limited was rated higher. “As a result, our cost of borrowing will drop by about 25 basis points. Last month we also received a major sanction from the National Housing Bank (NHB). We expect that over time, NHB’s contribution to our borrowings will increase. Therefore, we expect SHFL’s cost of borrowing to decrease, which will have a positive impact on margins and therefore profitability, ”he said. The additional borrowing cost for SHFL is currently around 7.50%.
According to CARE Ratings, the company has a moderately diversified resource profile. Bank financing remains high at 74% as of March 31, 2021. NCDs represented 17% of borrowings and NHB refinancing amounted to 8% of borrowings as of March 31, 2021. The average cost of borrowing has decreased from 9. 23% in FY20 to 8.36% in FY21. SHFL experienced 70% Assets Under Management (AUM) growth from Rs 2,306 crore as of March 31, 2020 to Rs 3,929 crore as of March 31, 2021. Total disbursements amounted to 2,195 crore of Rs in fiscal year 21 versus Rs 1,127 crore in fiscal year 20.. The AUM stood at Rs 4,255 crore as of September 30, 2021.
Compared to the 178 “Griha Poorti” outlets planned, the company will be operational in around 220 locations, in addition to 100 branches by the end of 2021, Subramanian said, adding that 10 new branches will be added by March. 2022., because it converted the “Griha Poorti” points of sale with high potential into independent branches. “After the merger, the objective will be to accelerate our expansion strategy, under the name of ‘Griha Poorti’. We will enter new geographies with a much larger presence and leverage the Shriram Finance network. Thus allowing us to achieve a deeper presence in specific states. By the end of 2023, we will undoubtedly be the largest and most dominant player in affordable housing in South India. It is a machine that has the wind in its sails, ”he added.
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