After 6 years in Shriram, Piramal spends 6 months looking for exit

Ajay Piramal, chairman, Piramal Enterprises
In the summer of 2013, Piramal group’s then 57-year-old chairman announced acquisition of 10 per cent stake in Shriram Transport Finance Company. Within months, Ajay Piramal’s flagship firm, Piramal Enterprises, purchased minority stakes in two more Shriram group firms, taking his total investments in the group firms to Rs 4,500 crore.

 

It was a precursor to take over Shriram group of firms as its founder chairman, R Thyagarajan, did not have a clear succession plan — this to the extent that he had kept his family members from joining his finance businesses. It was a win-win deal for both, the media reported.

 

Piramal took over as the chairman while Thyagarajan, 76 then, took a back seat. Other partners — Shriram Trust and Sanlam — agreed Piramal as the decision-maker. But group officials did not accept the new leadership with several in the top management quitting in quick succession. Some of those who left, including R Sridhar, G S Sundararajan, and Subhasri Sriram, had worked with Sriram for decades. "One of the main problems was that our founder believed in an outsider," said a senior Shriram group executive.

 

Six years later, Piramal is looking to exit his investment in Shriram companies and is in discussions with the Mahindra group. This, however, is not the first time Piramal is looking for an exit. In September last year, talks with KKR and Blackstone group failed. A proposed merger with IDFC Bank had failed, too, earlier that year.

 

"Piramal wants to sell his shares for the past 5-6 months, and wants to exit with good return. His exit is nothing to do with the culture or any issue between the two groups or management," Thyagarajan told Business Standard.

 

Piramal, bankers said, wants to sell his stake as that would provide liquidity to Piramal Enterprises, which is facing issues after the IL&FS meltdown. Any additional cash is good news for a real estate firm, said a banker. Rating agency Icra revised the outlook on Piramal Capital & Housing Finance’s debentures, long-term loans and tier-II bonds from ‘stable’ to ‘negative’ on Tuesday. The change factors in the increased risk profile of the wholesale lending and may impact the asset quality going forward.

 

“The culture of Piramal and Shriram group never jelled. While Shriram was more conservative, Piramal was more aggressive — especially in real estate lending,” said a banker close to the group.

 

But Thyagarajan said Piramal’s exit was more of a business decision. “His exit will not create any vacuum in the leadership. The group has an entrepreneurship culture and every company has its own independent management,” said Thyagarajan, who founded the group in 1974 to help his friends and family members earn a steady income.

 

Shriram Trust, which owns majority stake in Shriram group companies, will not be able to buy back Piramal’s stake as they do not have any bandwidth, he said.

 

An email sent to Piramal group did not elicit any response, while Ajay Piramal did not respond to text messages.

 

Shriram was just an investment for Piramal. “We felt he should participate in running the enterprise, which he did in the last more than five years. Today, he may have other priorities for investing his funds. There are so many factors that influence a person's decisions," said Thyagarajan, adding the relationship between the four partners, including private equity partner TPG, had been extremely heartening.

 

Piramal wants to buy land from stressed real estate developers and build commercial buildings and has made several investments in India and abroad. “If they find an opportunity that is more attractive, it makes sense for them to move away,” said Thyagarajan.

 

In July 2018, IDFC Bank and Shriram group proposed a merger between unlisted Shriram Capital with IDFC Bank “to create a financial power house” worth $10 billion. But it was clear in four months that the deal won’t work. Shriram Capital did not agree to the swap ratio proposed by IDFC Bank, forcing the merger to be called off. Interestingly, the merger was being discussed at a time when Shriram Transport shareholders got to know of a non-funded exposure of Rs 870 crore towards Shriram Ventures, an infra asset vertical. This disclosure, made in FY18 annual report, was not part of the fiscal 2017 report. Shriram Ventures is the promoter of stressed Shriram EPC, which had undergone corporate restructuring and had also been part of NCLT proceedings.

 

As shares tanked, Shriram group clarified that another Shriram private entity will take over the exposure. On July 4, 2018, Shriram Transport stock fell by 19 per cent intra-day to close at Rs 1,144 a share. The shares were only marginally higher at Rs 1,181 a share, with a market value of Rs 26,800 crore, on Wednesday.

 

In September 2018, media reports said KKR and Blackstone group were in talks to buy stake in Shriram group at a valuation of $3 billion. The sale was to take place after Shriram group merged its two listed entities with the unlisted holding company – Shriram Capital. The talks were not fruitful. 

 

Now, insiders say the Shriram group is merging unlisted holding company Shriram Capital with its publicly-traded units — Shriram Transport Finance Co and Shriram City Union Finance — that will result in the holding company getting listed, and giving an exit option to both TPG and Piramal. There is no timeline set for the merger yet. Will Piramal be third-time lucky?


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