Shriram Finance Limited (SFL) has announced that MUFG will invest approximately US$4.4 billion for a 20% stake. SFL aims to achieve a growth rate of 18%-20%, supported by strong GDP growth and increased credit demand in India. The capital infusion is expected to improve the company’s ROA and ROE over the next five years, with ROA reaching around 3.6%.
Strategic Partnership with MUFG
Shriram Finance Limited (SFL) has entered into a strategic partnership with MUFG, one of the world’s top banks. MUFG will invest approximately US$4.4 billion, acquiring a 20% stake in Shriram Finance. The partnership aims to leverage India’s growth story and MUFG’s experience in Asian markets.
Growth Strategy and Outlook
SFL is targeting a growth rate of 18%-20%, building upon its existing growth of 16%-17%. This acceleration is supported by India’s strong GDP growth, which has been around 8% plus in the last two quarters. The company believes credit demand will grow approximately 20%.
Financial Impact and Projections
The capital infusion is expected to improve SFL’s financial metrics over the next five years. The gearing will decrease to around 2.6, and the ROA is projected to expand from the current 2.8% to around 3.6%. While the ROE will initially decrease to around 13.5%, it is expected to return to its current level within five years. SFL anticipates a potential 10-20 basis point improvement in credit costs.
Key Priorities
SFL will focus on retaining existing customers and expanding its reach in the north, central, and east regions of India. The company will continue to focus on vehicle financing, SME lending, and gold financing. There are no plans for acquisitions or mergers.
MUFG’s Role and Synergies
MUFG will have two board seats. SFL aims to leverage MUFG’s digital platform and experience in other Asian countries. There are no plans for MUFG to increase its stake further. SFL will leverage MUFG’s treasury solutions and capital market support, but senior management will remain unchanged. It is expected that MUFG personnel will be in a number two or three-level position within the company. MUFG’s investment in Morgan Stanley and other Asian countries is also considered a positive factor.
Source: BSE
