RELIGARE ENTERPRISES

Given the fact that Religare Enterprises Limited’s stock has bounced from a mere ₹17 to ₹272 in a short period of one year, it is time for investors to know the inside story of how the company is faring now and, more interestingly, the involvement of the Burman family that has been increasing its stake

The shares of Religare Enterprises Ltd., a diversified financial services provider serving across India, experienced a significant decline from their all-time high of ₹702 somewhere in 2008 to a low of ₹17 during the time of the pandemic, a fall of more than 97 per cent. However, over time, the shares have recovered and shot up from ₹17 in March 2020 to ₹272 in September 2023, a significant increase of over 1,500 per cent. The company has also turned profitable for the last two years after six long years of slackness. This raises the question about whether you should invest in this turnaround story.

Religare Enterprises operates mainly in three business segments: retail broking, lending and health insurance. The company has several subsidiaries, including Religare Finvest Limited (RFL), Religare Housing Development Corporation Finance Limited (RHDFCL), Care Health Insurance, Religare Commodities Limited, Religare Capital Markets International (Mauritius) Limited, and Religare Capital Markets (Europe) Limited (RCME). Religare Enterprises has displayed significant growth in its revenue for the latest Q4FY24 quarter. Its consolidated revenue grew around 33 per cent on a YoY basis to ₹1,856 crore.

For the specified quarter, the company managed to generate ₹236 crore in profit. In the whole FY24 financial year, on a consolidated basis, Religare Enterprises recorded an all-time high in terms of yearly revenue of ₹6,235 crore and generated profit of ₹347 crore. Around 91 per cent of the revenue for the company came from its insurance business, 5 per cent from broking activities, and the remaining 4 per cent from other business segments. The flagship company of Religare Enterprises, Care Health Insurance registered the highest-ever yearly premium collection of ₹7,022 crore for the same year. The investment book is also up 31 per cent at ₹6,633 crore.

Company Management
Religare Enterprises Limited was founded and controlled by Malvinder Mohan Singh and Shivinder Mohan Singh. However, in 2018, they forcefully sold their stake due to the revocation of pledged shares by the lenders. Malvinder Singh and Shivinder Singh were once prominent Indian businessmen who also led other large companies like Fortis Healthcare and Ranbaxy Laboratories. However, they were arrested by the Delhi Police’s Economic Offences Wing for their involvement in a fraud case for diverting funds and causing losses of approximately ₹2,397 crore to Religare Finvest Ltd (RFL). Since then, the company has been operating without any designed promoter and is fully managed by corporate personnel led by Rashmi Saluja, the executive chairperson of the company. Rashmi and her team have transformed the company to make profits again.

Revival of Religare Finvest Limited
Religare Finvest (RFL), a wholly-owned subsidiary of Religare Enterprises Limited (REL), has made significant progress in its revival journey after facing financial distress due to the alleged misappropriation of funds by its erstwhile promoters, Shivinder Singh and his brother Malvinder Singh. RFL was under a corrective action plan (CAP) imposed by the Reserve Bank of India (RBI) in January 2018. In March 2023, RFL completed its one-time settlement (OTS) with 17 lenders by making a full and final payment of ₹400 crore, nearly a month in advance before the deadline, as per the settlement agreement dated December 30, 2022.

RFL engaged an external agency to investigate the siphoning of funds by the erstwhile promoters, aiming to recover the siphoned funds and ensure transparency in the recovery process. RFL repaid over ₹9,000 crore to its lenders from its collections and through the support of REL since January 2018. Going forward, the company aims to have a healthy balancesheet to sustain business growth in the next few quarters. Pankaj Sharma, CEO of RFL, has emphasised the company’s commitment to focusing on lending to MSMEs and creating a niche in this segment.

Entry of Burman Family
Since the exit of Religare Enterprises Limited’s promoters, the Burman family, associated with Dabur India Limited, has been buying stakes in the company through its various entities such as MB Finmart, Puran Associates, VIC Enterprises and Milky Investment Limited. The family has a long history of investing in various sectors, including healthcare, financial services, hospitality, education and media.

The following timeline would help to better understand the progression of the Burmans towards Religare Enterprises Limited.

April 2018
The Burman family initially acquired a 9.9 per cent stake in Religare Enterprises (REL).
June 2021:
The Burmans’ stake was raised to 14 per cent. August 2023 The stake was increased to 21.18 per cent.
September 2023
The Burmans signalled their intention to acquire a 5.27 per ent stake in REL for ₹407 crore, triggering an open offer
January 2024
The CCI approved the acquisition of a 5.27 per cent stake in REL by entities controlled by the Burman family, as well as a subsequent open offer to buy up to another 26 per cent.
January 2024
The Burmans increased their stake in REL by 4 per cent through open market purchases, taking its total stake to over 25.18 per cent.
January 2024
The Burmans’ entities made an open offer to acquire an additional 26 per cent stake in REL at ₹235 per share, estimated to cost ₹2,116 crore. The Burman family is waiting for necessary approvals from SEBI, RBI and IRDAI to complete the open offer for the additional 26 per cent stake to take over the company.

Challenges to Complete Open Offer
After the open offer announcement, the Burman family and Rashmi Saluja, Chairperson of Religare Enterprises Limited (REL), have been engaged in a bitter corporate tussle. Rashmi Saluja has questioned whether the Burmans meet the ‘fit and proper’ criteria to run a regulated entity like REL. The Burman family has accused Saluja of illegally receiving 22.7 million stock options in Care Health Insurance and raised allegations of insider trading. The open offer by the Burman family is currently stuck due to regulatory hurdles and a corporate governance dispute with REL’s management.

Conclusion
We believe that the Burman family’s takeover of Religare Enterprises will be a transformative event for the company, unlocking tremendous growth potential. With a rich legacy of managing Dabur India Limited for six generations, the Burman family has consistently demonstrated their ability to run businesses professionally. Their recent success in turning around Eveready Industries is a testament to their expertise. The recent SEBI directive to Religare Enterprises to apply for an open offer is a significant development, and we expect the necessary regulators to approve the offer soon.

The tussle between the Burman family and Rashmi Saluja seems to be softened, further strengthening our confidence in the company’s future. The health insurance segment of Religare Enterprises has immense growth potential, which can significantly enhance shareholder value. Furthermore, the stock is currently trading below the open offer price, making it an attractive investment opportunity.

Considering these factors, we strongly recommend buying the stock of Religare Enterprises, as we believe it has the potential to deliver significant returns under the Burman family’s leadership.