Burmans bolster financial services play with Religare

Burmans bolster financial services play with Religare

The Burman family’s open offer for acquiring Religare Enterprises has brought into focus their financial services play. The promoters of consumer goods company Dabur India have been slowing acquiring stakes in financial services companies for a while now.

The family with a worth of $10 billion, according to Forbes India Rich List, have a 26% stake in Religare Enterprises and are the largest shareholders in the company. Their plan would entail increasing their stake in the company to over 25%, which would trigger a mandatory open offer.

While the process was set into motion last week itself, the Burmans have no intention of stopping there. In media interactions, Burman, added that the family proposed to scale up their insurance and broking businesses under the Religare umbrella.

The announcement was significant since it would pit them against conglomerates such as Reliance Industries, which recently demerged Jio Financial Services and has big plans in the sector, apart from incumbents such as Bajaj Finance, Tata group, Aditya Birla group and the Shriram group among others.

Analysts and financial services experts see this as a move to tap into a growing sector. With India’s economy booming, demand for loans and other financial services such as insurance, whether health or general, have been on the rise. This has pushed companies such as Bajaj Finance, Tata Capital and Aditya Birla Capital to raise fresh funds.

“The Burmans are looking to diversify, and financial services is a sector that has visibility of earnings for the next 5-10 years. They don’t want to take the organic route, and thus raising their holding in Religare makes sense,” said Deepak Jasani, head of retail research at HDFC Securities.

Some experts say that the under-penetration of financial services in India offers a big opportunity for large business groups to increase their share in the sector.

“Financial services has huge headroom for growth in India given its under-penetration. So, the interest shown by large groups must be viewed in this context,” says G Chokkalingam, founder at Mumbai-based Equinomics Research & Advisory.

According to industry experts, India has low penetration across most sub-segments of banking and financial services when compared with developed countries. India’s retail loans-to-GDP ratio stands at around 13%, whereas the same for the US stands at about 76%, and for the UK, at 88%. The mortgage loan-to-GDP ratio of India stands at about 6%, compared to 77% in the US and 60% in the UK.

In insurance, the sum assured as a percentage to GDP for India stands at around 19%, against 251% for countries such as the US, while for Japan, it stands at 252%. The mutual fund AUM to GDP ratio of India stands at around 13%, compared with 120% for the US and 67% for the UK.

The Burman family’s open offer for Religare Enterprises, on full acceptance, will amount to Rs 2,116 crore. The 5.27% additional stake that the Burmans are buying in Religare will see them cough up Rs 407 crore.

The family also indicated that it would appoint directors to the board and assume control of the company. It would reserve the right to implement changes in the management structure as determined by the board.