What is driving the Burmans’ quest for Religare?

The Religare team, led by chairman Rashmi Saluja, however, resisted the Burman family's offer. Since then, there has been a flurry of accusations, casting a shadow over the future of the financial services firm.

So why are the promoters of FMCG giant Dabur resolved to take over Religare despite this ugly public spat? What hidden value do they see in the financial company? Why is Religare resisting the stake sale?

The rivalry between the two parties intensified in recent weeks amid a flurry of counter-allegations. The feud took a dramatic turn when an FIR was filed against members of the Burman family in connection with an alleged Mahadev betting app scam.

The FIR, which involves charges of fraud and gambling, implicates 32 individuals, including the Burmans and the promoters of the betting app. The Burmans have vehemently denied the allegations, maintaining that the allegations were a deliberate attempt to derail their takeover bid for Religare.

Let us first understand the Burmans’ larger plan in this takeover bid.

The Burman family had a collective net worth exceeding ₹77,000 crore in 2022, as per Forbes India’s estimates. Over the last 20 years, the family has built a diverse investment portfolio focused on healthcare, financial services, hospitality, education, and media. It has invested over $500 million and built several joint ventures with Fortune 100 companies globally.

The family’s investments in the finance and insurance sector include Aviva Life Insurance, Universal Sampo, and DMI Finance. The Burmans are now looking to create a large financial services platform offering lending, broking, and health insurance services. Religare fits right into that scheme of things.

The family first invested in Religare in 2018, after the former promoters, Malvinder Singh and Shivinder Singh, exited the company. Since then, they have been gradually increasing their stake, from 9.9% in April 2018 to around 26% in September 2023.

Religare’s health insurance business, Care Health Insurance, is a major revenue generator for the company and has been profitable since 2019. Care has a large network of branches and agents across India. It maintains a strong balance sheet with a solvency ratio of 1.82 times, surpassing the regulatory requirement of 1.5 times.

Given its impressive track record and financial stability, Care is well-positioned to benefit from the Indian health insurance industry’s long-term growth potential.

India’s vast and largely untapped healthcare sector holds immense potential for long-term growth. Fuelled by rising incomes, innovative product offerings, and increasing medical costs, health insurance penetration in India is projected to double from 3.8% in fiscal year 2021. This implies a compound annual growth rate (CAGR) of 17-18% between fiscal years 2021 and 2031.

The Burmans have the potential to generate substantial long-term value through the health insurance business alone. They could even consider divesting underperforming segments such as small and medium enterprise (SME) finance, housing finance, and retail broking to further unlock hidden value within the company.

Even if the Burmans maintain Religare’s business model, the stock’s price of ₹220-240 offers great value given its significant growth prospects.

At its current price of ₹226, Religare is trading at a price to book value (P/BV) of 3.4 times, which is a discount to both its health insurance peer, Star Health and Allied Insurance (trading at a P/BV of 4.8 times), and the industry average of 5.9 times.

Moreover, as promoters, the Burmans have a proven track record in steering companies to success, as they did with Dabur. The market’s initial bullish response to the stake hike bid reflects a shared optimism in the Burmans’ ability to guide Religare’s fortunes. The Religare stock hit a 5-year high of ₹271 after the Burmans announced their intention.

But it is not that simple. There is a lot more to this than meets the eye.

While the Burmans’ takeover bid for Religare is a bold move, the bitter rivalry between the two parties and the ongoing investigation by markets regulator Securities and Exchange Board of India (Sebi) into the Burman family’s dealings with Religare cast a shadow over the deal.

Should the Burman family's takeover bid be denied or the ongoing disputes between the parties persist, Religare could either continue under its current management or be acquired by another bidder.

This situation is not unprecedented, as a similar scenario unfolded between L&T and Mindtree. Despite strong opposition from Mindtree’s promoters, L&T successfully acquired the company. The promoters, who sought to maintain independent control and create value, eventually yielded and sold their stake to L&T.

Will the Burman family’s vision prevail? The future of Religare hangs in the balance, leaving investors and industry watchers on the edge, awaiting the next chapter in this corporate drama.