Religare: Business rejig to help unlock value

Plan to reorganise holding structure and separately list key units as finance, health insurance and capital markets deemed positive

Management of Religare Enterprise Ltd (REL) has been very busy in the past few months. First, in March, Religare Capital Markets made some new appointments, and then, in April, REL exited from the asset management joint venture with Invesco.

Religare is now looking at simplifying its business structure. REL presently operates out of three verticals — finance (Religare Finvest), health insurance (Religare Health Insurance Company) and capital markets (Religare Securities). The three entities are subsidiaries of REL.

Promoters hold 50.93 per cent of REL’s equity as on March 31, foreign portfolio investors hold 14.8 per cent stake, while non-institutional investors hold 26.07 per cent stake.

Going forward, it plans to reorganise each of these verticals as a standalone entity. As it may take 12-14 months for REL to implement this plan, the shareholding structure of the new entities is yet to be finalised. The proposed business reorganisation essentially means that revenue and profit of each vertical will be at the disposal of the same entity, compared with the current practice where everything is consolidated under REL. As a result, each business would have better potential to independently tap equity and debt funds.

For instance, Religare Finvest, which focuses on lending to small and medium enterprises, has always been the largest contributor to REL’s revenues (56 per cent). However, despite posting revenues of Rs 2,528 crore in FY16 and net profit of Rs 295 crore, its operational highlights were shadowed by weaker businesses like wealth management, asset management and health insurance.

Consequently, REL ended FY16 with loss of Rs 48 crore. The retail broking business, which includes Religare Securities and Religare Commodities, posted flat revenue growth (Rs 469 crore) in FY16 and nine per cent decline in net profit (Rs 23 crore). Likewise, despite 87 per cent growth in net earned premium, the health insurance division ended FY16 with net loss of Rs 71 crore due to high operating expenses.

As individual businesses are at different stages of lifecycle, the combined value of REL appears restricted. Also, the non-performing subsidiaries dilute the value of its most profitable business — Religare Finvest, thus impacting its valuations. The move would also help the three verticals streamline their focus.

Also, with companies readying up for initial public offer (IPO) of insurance business in the bourses, business reorganisation should help REL’s healthcare business list as separate entity. Interestingly, REL’s decision to realign its business comes at a time when group company Fortis Healthcare has decided to de-merge its diagnostics business — SRL Diagnostics for the purpose of listing it separately on bourses. REL and Fortis Healthcare are held by the same promoters Malvinder Singh and Shivinder Singh.

While the markets don’t seem to be impressed, given the marginal fall in REL’s share price on Monday, the reorganisation and separate listing of REL’s businesses is expected to unlock value and allow investors take exposure to individual businesses rather than a consolidated company.