Companies
What next for the Burmans now that they have won the battle for Religare
Summary
- After an 18-month struggle, the Burman family's open offer for Religare has concluded and Rashmi Saluja is out of the way. The family may now need to gather funds to strengthen the various businesses under the Religare fold.
The Burman family that won the battle for Religare Enterprises Ltd may have to invest as much as ₹5,000 crore (about $575 million) in the financial services conglomerate's subsidiaries, including to shore up Care Health Ltd.
Care Health, valued at ₹10,000 crore at its last rights issue more than three years ago, is seen as the crown jewel of Religare. But its financial results for the December quarter were worse than those of its listed peers. While Niva Bupa Health Insurance Co. Ltd. and Star Health and Allied Insurance Co. clocked profit of 13.24 crore and ₹215 crore respectively, Care Health posted a net loss of ₹50.87 crore.
“For driving Care’s growth and to address any losses, the promoters need to infuse capital," the CEO of a large insurance company said on condition of anonymity.
“Over the past few years, standalone health insurers have grown faster than general insurers and going forward, this trend may continue. The Burman family may need to inject ₹3,000-5,000 crore to kickstart the NBFC arm business and catalyze the growth of Care Health."
The Burmans last week concluded their open offer for Religare Enterprises 18 months after first proposing it, while shareholders ousted chairperson Rashmi Saluja at their annual general meeting on 7 February.
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According to Abizer Diwanji, founder of NeoStart Advisors Llp., the Burmans may need to invest at least ₹3,000 crore in Religare.
He also said Religare was likely worth more than its current market capitalization of about ₹7,700 crore since the value of its 63% stake in Care has gone up due to higher premium income.
"It is a conglomerate worth over ₹8,000-odd crore, considering the holding company discount. The group has all the right businesses to fetch growth. But, to make the takeover struggle worth it, the Burmans need to bring stability, settle legal issues and infuse capital over the next one year," said Diwanji.
“It does not really matter whether the Burman family or any one else is the owner of the conglomerate. The group needs peace and stability. What is required is to resolve the issues amicably with Saluja. The Burmans as the single largest shareholder definitely have been putting in capital whenever required over the past few years, but Saluja's team has also managed it when the business was in crisis," he added.
"Secondly, whoever is the owner or in control it would be important to improve corporate governance across the group companies to attract shareholders and avoid regulatory actions."
Holding companies such as Religare operate multiple businesses, and are usually valued less than the sum of their investments, often called a holding company discount.
Religare's other businesses
Religare owns licences for a non-banking financial company (NBFC) and stock broking but does not operate these businesses now. Burmans do have experience in the financial services business, and want to expand it through Religare, which will call for further investments.
The Burmans, who control consumer goods company Dabur India, has a 26% stake in life insurance firm Aviva Life Insurance Co. India Ltd. With the takeover of Religare, the group will not only be able to sell non-life products, but can also offer lending and broking.
Sanjay Doshi, partner for deals and head of transaction services at KPMG said, "Corporates, including many large groups, are keen to get into financial services businesses. Apart from health insurance, Religare has other important financial services arms, which provide good strategic entry into financial services for any group including the Burman family."
According to the insurance company head cited earlier, Burmans' efforts were worth it if their intention was to complete the stack of financial services offerings. He suggested a hands-off approach to managing Religare, and supporting with capital when required. Both insurance and NBFC businesses typically need capital support for their growth in early years till they become self-sustainable.
“As a shareholder coming in as a promoter, it may be early days to predict how the group will function under the Burman family, but Care Health and the other subsidiaries can be kept as purely management-driven to ensure growth and maintain corporate governance standards," Doshi of KPMG said.
Diwanji of NeoStart said the Burman family needs to infuse at least ₹3,000 crore to kickstart the NBFC and the broking businesses of the group-- Religare Finvest and Religare Broking.
An exit path for Care Health investors
Apart from this, the Burmans may also need to create an exit path for some of the high-net-worth investors (HNIs) in Care Health.
As per the Articles of Association of Religare, Kedaara Capital, which holds 15.86% in Care as a co-promoter, can facilitate an IPO of the insurer by 2026. Also, Religare has to provide an exit to the HNIs in Care in case a qualified institutional placement (QIP) is not completed by 31 March, 2022.
Since the QIP was not completed, Religare was supposed to make "commercially reasonable efforts" to provide an exit by way of secondary sale of shares by to several investors before 20 September, 2022. Under this, REL itself could either buy such HNIs' shares, or bring in a third party for this.
Apart from Religare and Kedaara Capital, state-run Union Bank of India holds 5.29% as a co-promoter in Care Health. Non-promoters hold 15.88%, with HNIs holding 13.02%. Within HNIs, Care's managing director Anuj Gulati holds 4.78% in Care. Other types of individual investors hold 0.72% and an AIF holds 0.97%.
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Under the Burmans, Religare can monetize a part of its stake in Care and bring it down to 51% to bring in the critical growth capital, but floating a share sale process for Care’s HNIs may be tricky at the moment since shares of health insurers are currently weak. Star Health's price at ₹392.35 is way below its listing price of ₹900, while Niva Bupa at ₹79.47 remains slightly above its issue price of ₹74.
However, industry experts said insurance is a long-term business and promoters of Care Health can launch an IPO to access public capital required for growth or provide its existing investors an exit.
Care Health IPO?
"Care Health is IPO-ready and can access public capital. It is a great company and the December quarter loss may just be a temporary phenomenon. Care Health does not have any particular problem, it just needs more capital to achieve the next cycle of growth," said Diwanji.
Doshi at KPMG too expects the business of health insurers to stage significant growth in the coming years.
"Health insurers need to work on opex costs and claims to balance profitability," said Doshi of KPMG.
"Health insurance is an under-penetrated sector in India despite IRDAI's efforts and Ayushman Bharat. There will be more efforts by the regulators and authorities in the coming years to enhance penetration which may result in changes in the business model of health insurance, but the market is definitely attractive. In terms of growth capital requirements, health insurers may need less infusion than life insurance business. A number of public listings of insurers are expected to happen which may bring in the required growth capital and transparency. This would make health insurance business including that of Care Health a long-term value accretive one," said Doshi.
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Several insurance firms are currently planning to go public via IPO, something that the insurance regulator has been insisting on.
Doshi said, "In terms of growth capital requirements, health insurers may need less infusion than life businesses. A number of public listings of insurers are expected to happen which may bring in the required growth capital and transparency. This would make health insurer business including that of Care Health long-term value accretive."
Correction: An earlier version of this article erroneously quoted Abizer Diwanji as saying that the Burmans may need to invest up to ₹5,000 crore in Religare.
