GROUP 7

ABHIJEET | ISHITA | PARTH | SARTHAQ | SHIPRA

INTRODUCTION
IDFC was founded in 1997 and went public in 2005 , in 2014 received
approval from Reserve Bank of India to set up a new private sector bank--
IDFC Bank.

IDFC Bank is looking at a business combination with Shriram Transport

Finance Corporation (STFC) and Shriram City Union Finance (SCUF).

Merging the two NBFCs with IDFC Bank will help the latter grow its retail
portfolio while the former will benefit from access to low-cost funds.

As per the proposed plan, IDFC Ltd will be the holding company of the
merged entity.

Shriram City Union Finance will be merged with IDFC Bank and Shriram
Transport Finance will be a fully owned subsidiary of IDFC, which will also
own 75% of the life and general insurance arms of Shriram Capital.
WHY MERGER?
The merger of the two group businesses may be the first of its
kind in India with different businesses located in different
companies
Merging the two NBFCs with IDFC Bank will help the latter grow
its retail portfolio while the former will benefit from access to
low-cost funds
It will also help make the country's most sizably voluminous
mass retail banking franchise with a universal bank at its core. To
help the bank meet its priority sector lending targets

One clear benefit for IDFC Bank is the boost to its retail portfolio.
Shriram Transport’s leadership position in financing pre-used
commercial vehicles and Shriram City Union’s large customer
base comprising micro, small and medium enterprises in rural
and semi-rural areas would help the bank meet its priority sector
lending targets.

Also, the cost of funds for the combined entity would come down
to an extent because of the bank’s low-cost current account and
savings account deposits
CONSIDERATION PAID
As per the proposed plan, IDFC Ltd will be the holding company of
the merged entity.

Shriram City Union Finance (SCUF), which is into consumer

financing, will merge entirely into IDFC Bank.
Shriram Transport, which has a much bigger asset base compared
to SCUF, will not be merged into IDFC Bank as that will led to a
substantial dilution of capital and impede the long term ability to
create wealth.

This merger might reduce the book value of the private sector
bank, according to two foreign brokerages. IDFC Bank’s book
value will see a 25 percent dilution if a merger goes through.

Merging Shriram Transport with IDFC is also ruled out as it

would result in diluting the stake of IDFC in IDFC Bank below
the RBI prescribed threshold of 40%, which is not statutorily
permissible.
Due Diligence Concerns:-
● Operational Due Diligence Concern:
• ‘Disagreement in share swap ratio
• How to manage the discount rate which directly affects the
valuation of the target company
• Unbundling the target entity i.e. breaking Shriram into parts
and merging Shriram City Union Finance and the IDFC bank
but not the rest of the group due to lack of synergy
● Financial Due Diligence:
• Peer Review,
• Analysis of Financial Statement and Profitability - assets
and liabilities
● HR Due Diligence Concern:
• Shriram Group: 42.9% owned by Shriram Ownership Trust
and Shriwell Trusts; multiple players across India and
abroad owning stakes in the conglomerate
• IDFC bank is a private company
● Legal Due Diligence Concern: Outstanding cases against
companies or personnel; collecting and assessing all of the
legal documents and information about assets and liabilities
 FINANCIAL DUE DILIGENCE

The cost of funds for the combined entity would come down to an extent because of the bank’s low-
cost current account and savings account deposits
 OPERATIONAL DUE DILIGENCE

One clear benefit for IDFC Bank is the boost to its retail portfolio.
Shriram Transport’s leadership position in financing pre-used
commercial vehicles and Shriram City Union’s large customer base
comprising micro, small and medium enterprises in rural and semi-
rural areas would help the bank meet its priority sector lending
targets.
 Human Resource DUE DILIGENCE

● Shriram has 55,000 employees whereas IDFC has 62,200

● The combined entity after avoiding for overlap will have around
1,10,000 employees
● The culture at Shriram has good culture and it is in tangent with
IDFC making it a good fit
 Legal DUE DILIGENCE

● Shriram Capital Trust is fighting a case against The Income Tax

department in the high court of Madras
○ Case is about the services take by Shriram Capital Limtied from
M/s. Oentoeng Suria & Partners, Indonesia
○ The court has directed M/s Shriram Capital Limited to make
payment to M/s. Oentoeng Suria & Partners, Indonesia, arising
out of the agreement, dated 6.9.2010, after deduction of tax @
20% (Twenty Percent).
○ Since Shriram Finance was looking to acquire an insurance
company in Indonesia, they utilised the services
 Peer Comparison
Bajaj Finserv
● Bajaj Finserv, India's most diversified NBFC, which provides instant approval on loans and
funds in account within 24 hours online conveniently at attractive interest rates with
minimal documentation.
● Founded in 2007 (15 Years Old) - Less trustworthy
● BB+/ positive' and Short-term rating of 'B' by S&P Global Ratings
● Net profit risen by 17%
● Customer satisfaction is on the lower end

SHRIRAM CAPITAL
● One of India's top NBFC offers commercial vehicle loan, passenger vehicle loan, FD & RD
deposits, insurance, business loans & working capital loans for individuals.
● Founded 1979 (43 year old) - More Trustworthy
● Besides this, the Shriram City FD also has an AA+ rating from CARE
● Net Profit risen by 24%
● High Customer satisfaction
THANK YOU