Chennai: In line with the group restructuring plans, the city-based non banking finance group Shriram has announced the merger of Shriram Investments Limited with Shriram Transport Finance Company Limited subject to the approval of the Madras High Court. A share exchange ratio of 1:1 has been approved by the board of two companies based on the valuation made by Ernst & Young.

According to Shriram group chairman R Thyagarajan, the merger will result in the creation of largest non banking finance company in the domestic truck financing industry. Last year the two companies disbursed around Rs6,000 crore.

"The combined entity will enjoy a stronger synergy of financial resources, managerial and marketing expertise that will enhance value for all our investors and stakeholders."

Meanwhile, for the first quarter ended June 30,2005 Shriram Transport has declared a revenue of Rs92.13 crore as against Rs71.98 crore for the corresponding period previous year. The profits also rose to Rs12.96 crore as against Rs10.09 crores recorded in the corresponding quarter of the previous year.

Similarly, the Shriram Investments too posted higher revenue of Rs85.67 crore for the quarter ended June 30, 2005 as against Rs74.30 crores for the corresponding quarter in the previous year. The net profit of the company also jumped from Rs9.56 crore to Rs12.86 crores.

Another group company Shriram Overseas Finance Limited declared a revenue of Rs10.52 crore for the first quarter and a net profit of Rs4.12 crore.

The board of three companies have decided to implement an employee stock option scheme covering around 500 employees, most of them working at the branch level.

The change over

Apart from truck financing, the Shriram group is a major entity in the chit funds market. It also has a presence in financing consumer durables, insurance and stock broking. However the is now trying to change is 26-year old profile.

The competition and consolidation in the non banking finance sector and the tightening of the regulations in the chit funds segment have prodded the group to do so.

The group's life insurance foray through Shriram Life Insurance Company Limited partnering with the South African life insurance group Sanlam is one such step.

With a network of around 600 branches and 65,000 chit fund agents catering to an around 3-million customer base, the group expects the life insurance company to do well. According to industry experts, with a distribution infrastructure in place the start-up cost for the company will be far less than that of the other life insurers in the country offering a huge advantage to Shriram Life.

However, not all share such views. According to them, the existing customers are largely middle and lower middle class and it is not possible for the company to get large-sized policies. The Shriram group tried to leverage its distribution network in marketing the life insurance products of AMP Sanmar Life Insurance Company Limited. However it is learnt that the life insurer didn't find the results very encouraging as the policy size was not only small but also the lapse ratio was very high. Further with a basket of finance products, how an agent could be enthused to push the life insurance product aggressively is another challenge for Shriram Life.

Unlike the other players in the market who market the unit linked life insurance products, the Shriram Life would focus on selling traditional products. As the investment-return risk is borne by the company here, the existing clients of Shriram group are expected to opt for it instead of the high-risk unit-linked schemes.

Meanwhile, it is learnt the group is training its employees to meet the challenges of the life insurance business in a major way, while the group is having an open mind to foray into non life insurance sector. The life insurance company is expected to be headed by Akhila Srinivasan, managing director, Shriram Investments.