Stock Review: Religare Enterprises

 

The performance of Religare Enterprises in the December quarter was disappointing. However, its recent acquisitions are expected to drive its growth in the coming quarters. The strong 74% growth in the consolidated revenue did not trickle down to profits since the company did not get support from its asset management and investment banking business segments. Its lending business, which drives almost half of its consolidated revenues, saw the interest yields contracting. Coupled with rising interest rates, this led to a 42% fall in the net profit for the segment. Further, its subsidiaries re-ported a combined loss of . 87.4 crore. Therefore, the company re-ported a loss of . 98.5 crore against a profit of . 21.5 crore a year ago on a consolidated basis.

However, the company is taking various initiatives to drive business growth. Its key global asset management and investment banking divisions have seen a spate of acquisitions. For instance, the global asset management business acquired Northgate Capital and Landmark Partners in 2010. This has given the company access to assets under management of $11.3 billion (. 56,000 crore) along with greater capabilities in primary and secondary private equity, venture capital and real estate segment.

Its investment banking business acquired three companies in the December quarter. Besides providing geographical diversification, these acquisitions would help in reducing the turn around time in the regions. Investment banking business is relationship driven. Once the integration with the target companies completes, the company would be able to fully capitalise on the target's relationships. This would help the company in generating profits at a fast pace. Moreover, the effect of rising interest rates on its lending business would fade away, as almost 62% of its financing book is floating rate in nature. Hence, the increase would be passed on to the borrowers. While the company has invested heavily in its key driving businesses, the future growth depends upon how fast the company finishes the integration with the acquired companies.