Alternative Investment

Assignement-3: Shriram
By: GROUP 15
Transport Finance Chaitanya Kumar-048

Kajol Kumari-080

Kumar Saharsh-091

Priyanka Kumari-145

Sidra Jalal-195
Q1.a) What makes the Shriram group of companies an attractive target
for investment?

• Diversified business ranging from financials like stockbroking, insurance products, MFs to
non-financial service such as IT and from musical instruments to stem cells.
• Coupling mathematical background with the business resulting in ease of decision
making.
• Life long customer relationships
• Monopoly in transport finance sector
• Fulfilling the motive of CSR by enhancing the lives of truck owners.

Q1.b) What factors did TPG consider when targeting STFC for investing?
• With market cap of $115 million, asset base of $1.15 billion and net profit of $11.5 million
STFC held a strong market position for investment.
• Transport sector company on the booming side making transport finance sector attractive.
Q2.a) What would be a suitable exit valuation? Which valuation method is best
suited for the given case?

■ The given values are extracted from the case exhibit.

■ EBITDA=Profit before taxation + finance costs + depreciation & amortization
=18809.10+24612.06+134.64 = Rs.43555.8 million (from exihibit 3)
■ Total no of shares= 226,300,568(from exihibit 7)
■ The best suitable valuation method would be to use EV/EBITDA ratio.
■ EV/EBITDA=1.11 so Enterprise Value(EV)=Rs.48346.938 million
■ Price per share=EV/total no. of shares= Rs.213.64/share
Q2.b)What is an appropriate valuation range?

■ A typical PE Investor would generally seek a 3 to 4 times returns on its

exit.
■ So according to calculation above the appropriate valuation range should
be 3*price per share to 4* price per share.
■ That would be Rs.640.92(3*213.64) to Rs.854.56(4*231.64) per
share.
Q3.a) What is the best exit option for TPG?
■ TPG can consider two options i.e. IPO strategy and Tarde
sale.
■ But we consider trade sales because it requires less time
and would be a less cumbersome process.
■ A partial selling of stakes to right strategic partners or any
other prospective investment client is what we recommend.
■ The secondary stake sale would not be a good option
because it would require more time and effort to identify a
financial buyer with enough capital and interest to buy TPG
stake in STFC.
Q3.b) Perform a comparative analysis of the
different exit options available.
Secondary
IPO Trade sale
sale
PROS: More control
PROS: Ripe market over the process,
PROS: Shortening the
condition, Highest immediate exit,
lifetime of a transaction
returns sometimes highly
valued

Cons: Problems leading

Cons: Exposed to
to change of control,
market risk till shares Cons: Difficult to get
sharing confidential
trade on exchange, another PE
information during
regulatory requirement
negotiation
Q3.c) Is the time ripe for an exit?

■ Yes, we think it is the right time for exit.

■ As 2012 has proved to be the great year for the
Indian stock market with 25.7% gain i.e. the best in
3 years.
■ Also STFC has a near monopoly in transport finance
sector.
■ And by early 2012, having acquired access to and
skilfully deployed PE money for growth, Sriram had
become the largest asset financing, NBFC in India.