Religare Enterprises, seeking to become a large global financial services firm with a specially strong foothold in emerging markets, appears to be in for a short-term pain, having slipped into the red with a net loss of Rs 129.8 crore in the fourth quarter ended March 31, against the net profit of Rs 32.15 crore in the year-ago period. Had it not booked an extraordinary income of Rs 128 crore from sale of property, the losses would have been much higher for the quarter.
This was even as the company almost doubled its consolidated total income for the quarter to Rs 1,033 crore, making it well-poised to hit the $1 billion revenue mark this fiscal.
This may have come as a temporary shocker to the fast-growing financial services empire of billionaire brothers Malvinder and Shivinder Singh, which has been on an aggressive build-out mode, acquiring companies and top-notch talents to boost its global financial services team.
The company spokesperson says there is nothing fundamentally wrong with REL and its model and that they have made significant progress during the year across all our businesses.
Shachindra Nath, Group CEO, REL said, "During FY11, Religare has made significant progress in building out its new businesses. We have brought on board some exceptional talent to strengthen our Emerging Markets Investment Banking business and have given concrete shape to our Global Asset Management Platform. Our Investment Banking business remains in investment mode and in the Global Asset Management business, we have made a couple of acquisitions and are focussing on the build out of distribution capabilities. In the second half of the year gone by, we saw some softness in the India business owing to pressure points in the financial markets, but the India story structurally remains intact."
Its revenue stream was boosted primarily by its investments business which is now the single largest revenue-earner for the firm, compared to broking services in the past. Other segments which have recorded significant rise in revenue include financing, insurance and AMC.
In contrast, the clear laggard has been the financial advisory segment where revenues shrank to less than a fifth while its broking-related services managed to move up just 6.5 per cent over Q4 FY2010. This means the firm has swiftly changed its core business beyond a broker to an investment and financing firm.
If we look at the segment earnings, the biggest contributors to poor bottom-line have been the losses made by the financial advisory business and the broking segment – both posting a loss of around Rs 117 crore ($27 million) each, compared to the combined profit of Rs 54 crore in Q4 of FY2010. This meant the company could not reap the benefit of its investment business turning around from the loss of Rs 31.7 crore in the fourth quarter in the previous year to a profit of Rs 122 crore while the financing business also churned out 56 per cent more profit.
Margin in the other businesses was also under pressure as the firm saw profit in custodial/depository services shrink, losses in insurance business expand and AMC business swinging into the red.
During the quarter, it infused around Rs 300 crore in its subsidiaries – primarily in Religare Capital Markets and Religare Health Insurance Company. It also invested Rs 64 crore in its joint ventures – Aegon Religare Life Insurance and Religare Macquarie Wealth Management.
In the last quarter, the firm also sold 10 per cent stake in Religare Health Insurance Company, and 5 per cent each to Corporation Bank and Union Bank.
Meanwhile, after March 31, the company has allotted cumulative redeemable preference shares worth Rs 130 crore to the promoter group and has also completed the transaction to acquire 55 per cent stake in the US-based Landmark Partners and 40 per cent stake in Investment Professionals Ltd. It has also announced plans to raise up to Rs 800 crore through a rights issue.