Mumbai: The Indiabulls group, which has interests in broking and financial services, is looking to expand into investment banking and re-enter the insurance business with a partner, besides finalizing a new strategy for its Store One retail chain, a top firm executive said.
Looking ahead: IBFSL chief executive officer Gagan Banga says the investment bank would be an extension of the firm’s existing businesses. Abhijit Bhatlekar / Mint
The group will soon hire bankers to build an investment banking team and has appointed Ernst and Young India Pvt. Ltd, the global consultant and audit firm, to find a life insurance partner, said Gagan Banga, chief executive of Indiabulls Financial Services Ltd (IBFSL), in an interview last week. Banga said the investment bank would be an extension of the existing Indiabulls businesses.
They include the retail and institutional brokerage Indiabulls Securities Ltd, and the non-banking finance firm Indiabulls Financial Services Co. Ltd, which issues loans to buy homes, automotives and consumer durables. Indiabulls, started in 2001 with steel magnate Lakshmi Mittal as a partner, has a net worth (capital plus reserves) of Rs16,000 crore, said Banga. IBFSL has a balance sheet of Rs10,000 crore—the third largest among non-banking financial companies (NBFCs), he said. IBFSL reported a revenue of Rs1,783.51 crore for 2008-09, with a profit of Rs190.17 crore.
Last year, the group launched a commodities exchange and infrastructure financing to buy stakes in projects. It also started lending to firms to buy construction equipment, and is awaiting approval from the Securities and Exchange Board of India to start an asset management firm that will fill gaps in its financial services business.
Additionally, it is developing 14 million sq. ft of land nationwide for residential, commercial and retail use, and is also building two power plants in Maharashtra to generate 6,700MW of power. “Our plate is full to the brim,” Banga said.
The retail broking brings distribution and institutional sales relationships, while the NBFC brings a large balance sheet, said Banga, explaining how existing businesses would complement the new ones.
“Financial services companies are trying to become financial services conglomerates by trying to capture every part of the resources of the savings of an individual, be it mutual fund, wealth, insurance, except for current and savings deposits,” said Abizer Diwanji, executive director and head of financial services at KPMG India Pvt. Ltd, a global audit and consulting firm.
But he cautioned that just expanding the portfolio won’t suffice. “The key challenge is to change their DNA from a seller of financial services to an adviser to their clients.”
Indiabulls suffered a setback in its initial entry into the life insurance business when France’s Societe Generale SA, walked away from a joint venture last year. But the group is working on finalizing a new partner by March, and has already received approval as an NBFC to own a 74% stake in a life insurance venture. Banks, on the other hand, are only allowed to hold 49.5% in such arrangements.
Experts say distribution and a strong network are key to insurance. “One of the biggest costs in selling an insurance product is distribution and this could be anywhere between 60-70% of the total cost,” said Rohan Sachdev, partner, Ernst and Young. Indiabulls is also trying to find the right strategy for its retail chains. It purchased Pyramid Retail Ltd in early 2008 and is experimenting with different models for growth. “It is a venture that has to find its feet and we are experimenting with various formats,” said Banga. “Once we finalize the format, we may look for a partner.”