The billionaire Ajay Piramal has exited most of the investments made in Shriram Group, which were first made in 2013 when there was a plan to use Shriram as an entry vehicle for a foray into financial services. That story, for some reasons, didn’t pan out, partly because of the cultural differences and also because of the corporate structure and nature of Shriram businesses.

In June 2019, Piramal Enterprises Ltd (PEL) sold its 9.96 per cent stake in Shriram Transport Finance for around Rs 2,300 crore. Pursuant to the restructuring of Shriram Group in December 2021, PEL received shares in four Shriram Group companies. On 21st June of this month, PEL sold its entire direct investment of 8.34 per cent in Shriram Finance Limited for a gross value of Rs 4,800 crore. PEL, however,  continues to own stakes in Shriram General Insurance, Shriram Life Insurance, and Shriram Investment Holdings. “We will consider monetisation of some of these investments at an appropriate time,” the group pointed out.

But Piramal has already created a new template for the financial services business away from his Shriram investments. The new business model revolves around diversified assets, a more granular funding mix, and better asset quality. The seeds of this transformation were actually sown at the time of the NBFC crisis in 2019.

Let’s do a recap. Between 2012 and 2019, it was all about wholesale and real estate finance for Piramal Group. The company went from being a small player to a major player in the developer’s finances thanks to high growth in the real estate market. Its journey was halted when the IL&FS collapsed, as the tight monetary policy conditions under former Governor Urjit Patel have resulted in asset-liability mismatches in the non-banking finance company (NBFC) space. The market borrowings were difficult to come by for the players.

It was in 2019 that the Group laid the foundation for its financial services business. Days before the Covid lockdown,  Piramal convinced top notch banking professional Jairam Sridharan, then CFO at Axis Bank, to come on board to take charge of retail expansion. It was during Covid period that the Group pounced on the beleaguered Dewan Housing Finance Ltd (DHFL) which was one of the largest housing finance companies in India. The DHFL acquisition is now fully integrated.

In terms of lending, the financial services business has done Rs 32,114 crore of retail lending and Rs 31,845 crore of wholesale lending in 2022-23. The Group is now scaling up its businesses in affordable housing, MSME lending, merchant financing, used cars, personal loans, and microfinance. The company is doing secured lending to MSMEs. There are also dozens of fintech partnerships for doing business. The big names are PayTM, LendingKart, Navi, Paisabazar, Indifi, CarDekho, IndiaLends, Zest, etc. Clearly, the company’s vision is to serve the diverse financing needs of the underserved ‘Bharat’ market.

There is a big change on the liability side. The company got rid of short-term borrowings. The leverage came down substantially from 5 times equity to 2 times. The company has also created a lot of provisions for the wholesale lending book, and most of the bad assets have been recognised and the profit and loss hit has been taken. The company is now looking towards the future.

It has significantly changed the product mix, with wholesale and retail asset sharing reaching half from 33:67 in 2022. The company is aiming to be retail-led, with two-thirds of loans and advances in retail and one-third in wholesale.

PEL, which earlier had a pharma business in it, is now a listed non-banking financial services entity in the wholesale lending space. This holding company, PEL, is now an operating company with a subsidiary, Piramal Housing and Finance Ltd (PHFL). This is the subsidiary that bought DHFL. This new structure is done keeping in mind certain concessions, like liquidity support from NHB under the HFC model.

PEL, on a consolidated basis, has earned total revenues of Rs 5,045 crore, profits of Rs 1,514 crore, and a balance sheet size of Rs 79,882 crore for 2022-23.
 
Piramal got the life insurance business along with the DHFL acquisition. DHFL owned 50 per cent stake in Primerica Life Insurance, which is now part of Piramal. Piramal is also in the alternative space. There are two funds, India Resurgence Fund (IndiaRF) and Piramal Credit Fund (PCF) with assets of $1 billion.

IndiaRF is a 50:50 joint venture between PEL and private equity player Bain Capital. This venture is set up to play in the distressed assets and special situation market. The second fund PCF lends structured credit facility to well to do growth companies.

There are still some missing pieces in Piramal’s financial services play. The Group has interests in mutual funds and General insurance. Given the high ambitions of Piramal, the group will not shy away from making acquisitions. The Rs 4,800 crore from Shriram stake sale will surely be well utilised to further scale or expand the business.

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