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The Shriram Group's enigma unravelled

By Sudeep Jain
October 05, 2010 12:10 IST
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Shriram GroupFrom struggling to attract private equity in the earlier part of the past decade to becoming the toast of PE funds over the past few years and donning the role of an investor itself -- life has come full circle for Chennai-based Shriram Group.

The group, which 10 years ago was only a modest financier of second-hand vehicles, now has a Rs 1,000-crore (Rs 10-billion) cheque from US PE firm Texas Pacific Group.

The money will be used to build Shriram's non-financial services portfolio, primarily in infrastructure or for banking operations if a much-awaited licence comes through.

While the TPG investment will come into Shriram Capital, the PE firm already holds indirect stakes in Shriram Transport Finance Company, group's biggest revenue generator, and Shriram City Union Finance, the consumer finance business.

"We generally wanted liquidity to invest in some new businesses, probably non-financial services, and we are looking at the infrastructure sector -- one in which there is a lot of capital requirement," says Arun Duggal, who chairs five Shriram Group companies, including STFC and Shriram Capital, the holding company for all financial services businesses.

"Financial services is our core business and we are in it for the long haul. On the non-financial side, we like to take an opportunity, back an entrepreneur, create value, and if it calls for an exit, we exit. It's a bit more than venture capital—we are involved, provide management support and guide the entrepreneur," he adds.

According to Duggal, the strategy has been in place for a long time, but is only now gaining attention.

"Earlier, the companies were small. It's only now that some companies such as Shriram Properties (the real estate arm) and Shriram EPC (the engineering and construction arm) have become big companies," says Duggal.

The other piece of the puzzle is, of course, the banking licence. If it gets permission to set up a bank -- and industry insiders are unanimous that it's the strongest contender for one -- it will set the group well on its way to becoming a financial services behemoth.

"We are also aspirants for a banking licence. If we get it, a good portion of the money (from TPG) will go into that. If we own a bank, the range (of our businesses) will be much more complete and targeted at our lower-income customers," says Duggal.

It's a moment for which the group has been preparing for the past few years, according to industry observers.

"Shriram missed out on the first round of licences because it was too small and the focus was different. But this time, it has a clear-cut strategy as far as banking is concerned," said the head of a private sector bank.

Banking licence notwithstanding, the group has been forging ahead on multiple fronts and is gobbling up the assets of distressed owners with surprising regularity.

Last December, STFC bought GE Capital's commercial vehicle finance and equipment finance portfolio for Rs 1,200 crore (Rs 12 billion).

It is also in the fray for Citi Financial's India business, an acquisition that, if consummated, would instantly give the fledgling mortgage portfolio of Shriram City Union Finance quite a few million home loans.

Shriram City Union recently hired HSBC retail assets head Ravi Subramanian as CEO, a sign that it plans to aggressively grow its consumer finance and home loans business, according to bankers.

More recently, the group again partnered with TPG and will buy the front-end operations of Delhi-based Vishal Retail. TPG will buy the wholesale operations of the beleaguered supermarket chain.

"Vishal has two attractions for us. One is its in a little bit of stress, so somebody like us going in and managing it better will add value and reduce uncertainty.

Secondly, it is highly compatible with our business focus -- low- and middle-income customers in small towns and small cities. We are not going to open stores in Mumbai's Parel or Delhi's Connaught Place," says Duggal.

Shriram's acquisitions over the past few years have not been restricted to portfolios. Last year, the group brought in a large team from Fullerton India, including its then managing director & CEO GS Sundararajan.

He is currently managing director of Shriam Capital and is likely to play a key role in the group's banking operations, if and when it gets a license.

According to the head of a private sector bank, group founder R Thyagarajan, who prefers to keep a low profile, has a knack for spotting people with an entrepreneurial streak.

Despite its aggression, the Shriram Group is somewhat of an enigma, even within business circles.

"There has been very little publicity of Shriram as a group. While a few key people and businesses, such as STFC, are well-known, there is very little known about the second-rung of management," said a senior executive of a private sector bank.

"It is a household name in southern India, but it should do more to get better visibility in the north."

The head of another private sector bank agrees.

"These are not flashy people and go about their business quietly. But it would help if there was more awareness about the group.

They are a highly diversified group and it would help if people knew more about their investments and how they are doing," he added.

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Sudeep Jain in Mumbai
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