Shriram Group recast. Can Shriram Group’s founder R Thyagarajan finally retire now?

Three issues have been worrying R Thyagarajan, RT as the octogenarian founder of Shriram group is fondly called by his friends and colleagues, in the recent years. A clear-cut succession plan for the business he had founded 45 years ago, a structure that will best leverage the group’s strength going forward and finally, ensuring that the organisation stays true to its purpose.

The last of the concerns, for him, stems from the strong view, within and outside the organisation, that morphing into a bank is the next logical move for the Shriram group whose combined assets under management (AUM) exceeds ₹1.5 lakh crore. Thyagarajan has been dead against the move. He has repeatedly made it clear that entry into the banking space would move the group away from its stated objective – serving the underserved. It was this mission that forced a 37-year old Thyagarajan to give up a cushy job in the insurance sector and start a chit business way back in 1974.

Today, its two largest businesses – Shriram Transport Finance Company (STFC) and Shriram City Union Finance Company (SCUF) – serve the unbanked and the bottom of the pyramid namely the truckers, people from economically weaker sections of the society and small entrepreneurs. General and life insurance businesses which were also added to the portfolio later, have a similar focus. The group with over 77,000 employees across 3,850 offices nation-wide has been growing at a CAGR of 40 per cent in the last 7 years. But to Thyagarajan’s consternation, the talk of a banking foray never really dies down. “A banking foray will not work for the group,” he emphasises hoping that his successors won’t make that mistake.

Search for a leader

Having built an employee-centric professionally-run organisation, Thyagarajan has been on the lookout for a leader to take over the reins of the group. He thought his search had ended when Ajay Piramal entered the group in May 2013 by picking up 9.96 per cent stake in STFC and a 20 per cent stake in Shriram Capital, the group’s holding company, in April 2014 (he also took a 9.9 per cent stake in SCUF later). It was around the same time that Piramal became the chairman of Shriram Capital. “We needed the kind of leadership he provides. We wanted him to be with us for a long time,” recalls Thyagarajan. But in five years, things unravelled.

The first hint of the problem surfaced when, in June 2019, Piramal sold his stake in STFC. Five months later he formally announced that he would step down as the Chairman of the group. “It was a cultural issue,” says Thyagarajan adding “a couple of initiatives that he undertook did not deliver major benefits.” But people who have been closely tracking the group were more forthcoming. “Shriram group is run by employees and a top-down approach does not work. Such is that culture that even RT’s suggestions are ignored many a times,” says a Chennai-based business leader who did not want to be identified.

A few others blame Piramal’s exit for his initial plan of merging Shriram Capital and Piramal Enterprises (PEL) not fructifying (due to massive difference in the size of the two businesses which threw up a swap ratio that sharply reduced the holding of PEL promoters).

He then, in 2017, tried to oversee a merger of the Shriram group with IDFC to create a financial services behemoth. But the deal was called off after 4 months due to sharp differences over valuation. Piramal’s exit brought the succession plan in Shriram group back to square one and Thyagarajan was back overseeing the group.

In December, Thyagarajan announced that promotership of the group was transferred to the Shriram Ownership Trust (which has close to 40 employees who have built the group over the years as members). The trust has a 30 per cent stake in Shriram Capital.

A board of management comprising DV Ravi, MD, Shriram Capital, R Duruvasan, former MD, SCUF, Umesh Revankar, MD, STFC and Jasmit Singh Gujral, MD, Shriram General Insurance Co has been formed to oversee the group affairs. All the four were named as trustees.

“One individual cannot manage a large group like ours. It requires a set of individuals with varied skills who can collaborate to drive the group’s vision and strategy,” Thyagarajan explains. Will such an arrangement work? “Why not,” he asks. “All four are designated equal. They have run businesses successfully and have complimentary skills. Also, they have worked together for over two decades,” he adds.

Mega restructuring

A few days later, a mega restructuring that Thyagarajan has been looking forward to, was announced. SCUF and Shriram Capital will merge with STFC. Shriram Finance, the merged entity, will be led by YS Chakravarti who is presently the MD & CEO of SCUF.

Stock markets have been sceptical of the recent measures and STFC and SCUF shares have taken a beating since the announcements. The proposed merger is unlikely to generate meaningful revenue or opex benefits, HDFC Securities said in its report. Kotak Institutional Equities said that there are no direct near term benefits. Rating agencies have flagged concerns considering the different risk segments the two entities operate in. Some analysts have pointed out that the merger will lead to value erosion for public shareholders as the swap ratio favours the unlisted holding company. They say that the merger is being done to offer an exit route to Piramal who holds a 20 per cent stake in the unlisted Shriram capital.

“That is not true. There was no commitment to Piramal, legal or moral, for an exit option,” says Thyagarajan. He, on the other hand, sees benefits. “Unlike STFC, SCUF has not expanded outside South. By this merger we can do both businesses – truck finance and consumer/enterprise financing, all over India. It brings in efficiencies and will result in better deployment of leadership resources within the group,” he adds.

Thyagarajan, 84, is hoping that the recent measures will finally allow him to retire with the confidence that the group he created to serve the society remains true to its purpose, grows in line with its potential with succession issue resolved once and for all.

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