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The Shriram Group is in discussions with US-based Warburg Pincus LLC and Bain Capital LP regarding the potential sale of its housing subsidiary, Shriram Housing Finance Ltd, with an estimated transaction value of approximately Rs 5,000 crore. This move signifies the conglomerate's intention to restructure its growth strategy, which is based in Chennai. Substantial interest has been generated in talks with Warburg Pincus and Bain Capital, and if negotiations proceed as anticipated, the parties could finalize the deal by the end of the upcoming June quarter.
Shriram Finance Ltd., holding an 85% stake in Shriram Housing Finance, is strategically engaging in discussions with potential acquirers. Reputable investment banking entities, including Barclays Bank Plc, JM Financial Ltd, and Avendus Capital Pvt. Ltd, are assisting in the transaction process and diligently shortlisting potential buyers, adding an extra layer of diligence to the strategic proceedings. The market's positive response includes substantial interest and bids in the Rs 5,000-5,500 crore range, confirming strong valuation and acquirers' credibility.
The Shriram Group intends to strengthen its financial services portfolio, emphasizing core lending through Shriram Finance. Initiatives like asset reconstruction and the Shriram One super app highlight the group's commitment to diversification and innovation. The potential disposal of Shriram Housing Finance aligns with evolving dynamics in the affordable housing sector. While Shriram Housing Finance has shown impressive 44% growth, challenges arise from its predominant business in India's western and southern states, featuring an average loan size of Rs 16.6 lakhs and reliance on unbanked, self-employed homebuyers. The group contemplates divesting from this business for strategic recalibration.
Ravi Subramanian, Shriram Housing Finance's MD and CEO, noted contrasting trends in the affordable housing sector. He highlighted challenges in urban areas, where high land costs and rising material expenses have diminished the attractiveness of affordable housing for realtors, leading to a noticeable reduction in its share within the overall residential real estate market. Successive rate hikes by the Reserve Bank of India totaling 2.5 percentage points in less than a year have impacted consumer sentiment, leading to delays in property acquisitions.
Observations from Anarock reveal a shift in trends as developers focus on mid- and luxury-segment projects, reducing the launch of affordable housing units. The share of affordable homes in new supply across seven major cities during Q2 FY24 has declined to 18%, down from 42% in 2018. This marks a departure from the prior dominance of affordable homes in the real estate market. The limited post-pandemic resurgence in the urban labor market significantly influences the trajectory of the affordable housing segment.
In summary, Shriram Housing Finance's potential disposal aligns with the Shriram Group's strategic vision to realign its business portfolio. This includes a concentrated focus on core lending through Shriram Finance and efforts to bolster cash reserves. The expected sale proceeds will support the group's aspirations for new financial services ventures, enhancing its competitive position.
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