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Why Are The Burman’s Bidding $250 Million For Dabur - Religare Deal?

By AltG Innovation Centre On Behalf Of Poornima Vardhan And Taponeel Mukherjee

Photo Of Dabur - Religare Deal

The news of the Burman family hiking their stake in Religare Enterprises Limited (REL) last week immediately brings 2 questions to mind: Is the worst over for REL, and what do The Burman know about the financial services platform of REL that no one else is seeing?. The Burman of Dabur have offered INR 2,116 Crores ($254 Million) for a 26% stake in REL, valuing the company at $980 Million. This is in addition to the 21% they already hold. The APEXX Formula sees this potential deal as a candidate for the "deal of the decade", provided ALtG's recommendations are implemented for REL.

What Will be The 4 Key Future Value Creation Levers For REL?

  1. Spin-Off non-focus businesses to reduce conglomerate discount and focus on growing the key business, i.e. Health Insurance

  2. Technological and Operational Improvements to bring Operating Expenses Related to the Insurance Business as a ratio of Gross Premium Underwritten to that of the market leader

  3. Capital Allocation into high-growth adjacency businesses such as Insurance TPA businesses.

  4. Asset recycling via using Re-insurers to focus on asset-light growth.

Introduction to Religare Enterprises Limited (REL):

Currently, REL consists of four key businesses:

  1. Insurance (Health and Travel) - Care Health Insurance Limited (CHIL) - 64.98% ownership.

  2. SME Finance (NBFC) - Religare Finvest Limited (RFL) - 100% ownership

  3. Housing Finance (Affordable) - Religare Housing Development Finance Corporation Limited (RHDFCL) - 87.5% ownership through RFL

  4. Retail Broking - Religare Broking Limited (RBL) - 100% ownership

What does the APEXX Formula recommend for REL?

Focus On The Health Insurance Business, Sell Everything Else

REL needs to keep its stake in CHIL and work towards strategically, financially and operationally improving CHIL and, thereby, its own valuation and exit the other 3 businesses completely to reduce the conglomerate discount that is evident on the stock. REL must focus on CHIL, India's 2nd largest Standalone Health Insurance Business.

Health Insurance: Poised For Massive Growth

India remains a severely under penetrated market for health insurance, with ~5.1 crore persons covered under some form of health insurance out of India's total population of ~140 crore, which forms only 3.8% of the total population.

A large population base, along with massive underpenetration, provides a long-term sustainable growth opportunity for the Health Insurance Business. With all trends such as rising income, product development, and medical inflation in favour of the industry, the insurance penetration is expected to double (from 3.8% in FY21) at a 17%- 18% CAGR from FY21-31E.

Further, REL has no scale, managerial ability and economic rationale to be in the other 3 businesses. 75% of REL's revenue comes from CHIL through its 64.98% ownership. Thus, the other 3 businesses simply offer a low Return on Invested Capital for the shareholders and have limited synergies.

  1. SME Finance (NBFC) - Religare Finvest Limited (RFL) - RFL has a loan book of INR 1112 Crores, a paltry sum in a highly competitive and scale-driven business. Even a smaller listed peer such as PaisaLo has a loan book of INR 2,591 Crores. In an environment with a high cost of capital, we don't see any competitive advantage for REL to compete in SME Finance. With high NPA's and no scale, RFL needs to be sold at the earliest.

  2. Housing Finance (Affordable) - Religare Housing Development Finance Corporation Limited (RHDFCL) - REL needs to exit RHDFCL immediately. With a loan book of INR 262 Crores, it's a distraction, to say the least. An Aavas Finance has a loan book of INR 14,167 Crores.

  3. Retail Broking - Religare Broking Limited (RBL) - RBL has 0.118 Million active users, compared to 6.3 million for Zerodha and 4.23 Million for Angel One.

The key is to understand that given the lack of scale, specialisation and highly competitive nature of the above 3 businesses, it is essential to exit them and generate capital to invest into the one REL should deeply care about and grow, CHIL.

A sale of the 3 businesses can potentially unlock cash in the range of 1000-1500 Crores for REL, valuing them based on the publicly traded comparables.

Operational Improvements

  1. CHIL, compared to Star Health & Allied Insurance Company (SHI), has a significantly higher Operating Expenses Related To Insurance Business as a ratio of Gross Premiums Underwritten. According to the FY23 numbers, the number stands at 33.71% for CHIL versus 28.83% for SHI. That's a massive value-unlocking potential for REL to focus on resolving the operational inefficiencies in the business. A margin closer to SHI's number puts the hypothetical PAT for CHIL at INR 310 Crores versus the current INR 246 Crores.

  2. Switch from a high fixed operating expense to a high variable expense model - Essentially, moving the cost structure will incentivise the agents to do more sales and earn a higher commission to drive revenue growth.

The APEXX Formula shows that the stake sale helps create significant value for the Burmans, especially with a focus on their potential new 26% stake. The first two value creation levers are the immediate value creators, while the last two need focus once the business has been realigned.

Photo Of Dabur - Religare Deal Analysis

According to the APEXX Formula, Burmans may anticipate five-year returns as follows:

  • If the P/E (Price-to-Earnings) ratio is at 40 in 5 years, earnings growth rates of 15%, 20%, and 25% would yield an ROIC (Annualised Return on Invested Capital) of 19.2%, 24.39%, and 29.57%, respectively.

  • If earnings growth remains constant at 15%, improvements in the P/E multiple to 40, 50, and 60 will result in ROICs of 19.2%, 24.64%, and 29.27% over a five-year period.

In Summary, The APEXX Formula shows that Burman's $254 Million REL bid will create significant value. However, as Burman's foray into financial services, the key to unleashing formidable value is through strategic capital allocation and savvy financial engineering.


  1. Conversion Rate Assumed: 1 USD = INR 83

  2. All returns are in INR terms

Disclaimer: Any views, comments or communication made via emails (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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