IIFL Holdings’s R. Venkataraman: Staff ownership at the heart of restructuring
Mumbai: Mumbai-based financial services company IIFL Holdings Ltd recently announced that it is restructuring its various businesses, which will result in the creation of three separate listed entities—IIFL Securities, IIFL Finance and IIFL Wealth. The three entities will house the group’s three main businesses of broking, lending and wealth management.
In an interview, R. Venkataraman, co-promoter and managing director, IIFL Holdings spoke about the rationale behind the restructuring, the role of the group’s various private equity investors in the decision and the way ahead for the separate entities and the promoters. Edited excerpts:
Was the restructuring exercise driven primarily by the need to provide an exit route for the PE investors in your businesses?
We never thought about it that way. In the last two years we got private equity from General Atlantic and CDC Group. One would say, once you get a private equity investor you have to give them an exit. But if you think like that then we still had around five years to go for their exit. So we were not in a hurry. However, over a period of time we realized that all these companies have reached a critical mass. In all these businesses, we are making a decent amount of money, on a stand-alone basis.
The other thing was that we thought that if we list them separately then the management will be much more nimble and focused. The environment is rapidly changing, technology is changing, customer profile is changing. So, if you separate them then you will have a management team that is flexible, which will be focused and which will be rewarded for the gains of that business.
Also, from the start, our philosophy has been of employee ownership. For example, we had brought in teams from CLSA and Kotak to set up the institutional equities and wealth businesses, respectively. We need to give stock options. But if you only have the listed entity stock options to give, then you are not able to directly correlate the reward for effort and performance.
So considering all these factors, we decided to go into this restructuring exercise. Exit for PE investors was not the primary motive for this.
Were current market conditions a factor in deciding to go for this exercise now rather than later?
We are here for the long haul. IIFL was started in 1995 and me and Nirmal (Jain, co-founder) haven’t sold a single share. I strongly believe that you can’t time the market. For example, who could have predicted in January that the Indian market will see this correction. So, we are not here to time the market. We are here for the long run. So it was not done with the thought of timing the market.
Did you look at the option of going for an IPO of the different businesses? Given the current buoyant primary market, one would assume that IPO would lead to more value creation?
We thought and debated a lot. We thought that this structure was the most fair to all stakeholders, GA, CDC and Fairfax, which is invested in the parent company. The shareholders of the parent company are getting direct shares in all the subsidiary companies.
We did think about an IPO for the wealth business but then we did not require capital there. In the broking business too there was no need for additional capital. Only in the NBFC business there is a perpetual need to raise capital. Through this structure we do not have to dilute right now and we can dilute when there is need to raise capital. So all things put together, this was the most optimum solution.
Are you eyeing inorganic growth opportunities?
The issue with inorganic growth is that more than all the numbers fitting, cultural fit and integration is a big challenge. Unless the cultural chemistry matches it is difficult. We are open to looking at opportunities but the cultural chemistry is a bigger challenge than financial numbers.
How actively involved are the founders going to be post the restructuring exercise?
We are not aching to retire. Both me and Nirmal have just turned 50. We will be involved in strategic matters and to give direction. But day-to-day running of the businesses will be done by professional CEOs.
What is the near to mid-term vision of the group?
We think there is a big opportunity in financial services. Financial services in India is under-penetrated-- be it credit, wealth management or broking. Any number you look at—demat accounts, mutual fund folios—we are very low. So the opportunity to grow is huge. All our businesses are seeing huge tail winds. So now is the time for us to focus on operational excellence and consolidate our position. This is not the time to get carried away and make mistakes.