ICRA has assigned an IPO Grade 3 indicating average fundamentals, to the proposed initial public offering of Religare Enterprises Limited (REL).

ICRA assigns IPO grading on a scale of IPO Grade 5 through IPO Grade 1,with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. An ICRA IPO Grade is a symbolic representation of ICRA’s current assessment of the fundamentals of the issuer concerned. An ICRA IPO Grade is not a comment on the price of the security concerned nor should it be construed as a recommendation to invest or not to invest in that security.
Further, an ICRA IPO Grade is not a certificate of statutory compliance or a view on the issuer’s future stock price or Credit Rating.

Strengths : Strong brand image on account of parentage and association with the Ranbaxy Group Large branch network and wide range of product offerings (trading,loans against shares, personal loans,and wealth management products) offer good scope to grow business volumes, Strong and experienced management team, Adequate risk management systems and processes in place.

Concerns : Lack of diversification of earnings, as earnings are largely dependent on trading turnover and stock market performance; however, fee from wealth management products likely to increase diversification; Relatively short track record of operations in new business lines,such as consumer finance and investment banking; Ability to manage business segments perceived to be relatively riskier, like personal loans; yet to be demonstrated Ability to leverage large investments in infrastructure (to improve key financial indicators) yet to be established; however, company has been increasing its market share by growing business volumes rapidly ;Ability to retain experienced and skilled manpower, given the entry of new players with aggressive business plans in the financial services space.

The IPO Grade 3 assigned by ICRA factors in REL’s strong parentage and the brand equity it enjoys on account of its association with the Ranbaxy Group. The grading also takes into account the company’s suite of product offerings within the financial services space, its wide branch network, and its growing business volumes and market share.
With economic growth being strong and income levels rising there are significant opportunities for the company to leverage its franchise and build on its business volumes.

The grading also draws comfort from REL’s strong and experienced management team and the risk management processes implemented by the company. The grading is however constrained by the high impact of stock market performance on REL’s overall business, its relatively short track record in the newer business lines such as consumer loans, and its large expenditure on branch and network infrastructure, which will have to be leveraged quickly so as to improve its key financial indicators. While assigning the grading, ICRA has taken due note of REL’s attempt to lower its dependence on the stock market by entering other business lines like unsecured retail credit and wealth management. ICRA considers REL’s venturing into wealthmanagement a positive from the perspective of earnings diversification. As for the company’s entry into the relatively riskier segment of unsecured lending, the success of this move would be
evident only over the medium term since track record in managing asset quality has a strong bearing on risk based returns in this segment.

About the company Religare Enterprises Limited (REL) is a financial services company offering a range of financial services targeted at retail investors, high net worth individuals and corporate and institutional clients. The company has been promoted by the promoters of Ranbaxy Laboratories Limited. They operate from six regional offices and 5 sub-regional offices and have a presence in 330 cities and towns through a branch network of 979 branches managed by the company and their business associates. While majority of the offices provide the full spectrum of services, company also has dedicated offices for some of its businesses like Insurance as per the regulatory requirements.

Religare Enterprises Limited is primarily a holding company with about 10 subsidiary companies through which it offers the range of financial services. However the main operating companies are Religare Securities Limited and Religare Finvest Limited which contributed more than 85% of the total income for the group in 2006-07. REL has reported a total income of Rs. 1971 million and a net profit of Rs. 281 million for the year 2006-07.