Shriram Transport shares fall 7% after merger announcement; brokerages divided on stock

The shares of index heavyweight Shriram Transport Finance have cracked over 7 per cent to hit the day’s low level of Rs 1370.7 per share on the BSE intraday on Tuesday. Shriram Group on Monday has announced a merger of three entities — Shriram Transport, Shriram City Union, and Shriram Capital. 

Even the brokerages are divided, after the parent company’s merger decision and have estimated either marginal growth or reduction in the share price of Shriram Transport. 

In this regard, JP Morgan maintaining an overweight stance to set a target of Rs 1550 per share. It is seeing the synergy benefits from the Shriram Transport-Shriram City merger at 10 per cent of the former’s net income. 

The brokerage also said Pro-forma BPS dilution is 2 per cent for a company based on September 2021 net worth and the technical overhang of PE investors selling out to remain post-merger. 

Positives for Shriram Transport are partly diluted by 15 per cent premium paid to acquire Shriram City’s stake, any overhang of stock supply from non-promoters needs to be watched, Jefferies says. 

The global brokerage maintains an underperform stance with a target of Rs 1250 per share, and adds any overhang of stock supply from non-promoters needs to be watched. 

While CLSA is not expecting any meaningful financial impact expected for Shriram Transport from its proposed merger with Shriram City, it maintains an outperform call with a target of Rs 1600 apiece.  

The brokerage says, Pro-forma of merged company numbers indicate 1-4 per cent EPS dilution and 3 per cent BVPS dilution.  

The respective board of the companies — Shriram Capital Limited, Shriram City Union Finance Limited and Shriram Transport Finance Company Limited - announced the merger, which would be the largest retail finance NBFC in India, the Shriram City Union said in a filing to exchange on Monday.  

According to the statement, Shriram Capital will demerge its financial services and insurance business and the rest of its business to be merged with Shriram Transport. While Shriram Transport to merge Shrilekha business consultancy with Shriram Capital, it added.