Ingovern Raises Red Flags Over Religare's Decision To Invest In Group Co
Shareholders of Religare Enterprises Ltd (REL) have been cautioned by proxy advisory firm Ingovern about the company's plan to invest in a wholly owned subsidiary without appropriate valuation report. REL is witnessing a bitter battle over control between its current chairperson Rashmi Saluja and the Burman family, the promoters of Dabur group. REL says that the Reserve Bank of India (RBI) has denied Burman family's open offer to buy a majority stake in the financial services firm. But Burman's have accused Religare of non-cooperation and delaying the offer. Amidst this fight, Religare has put up a special resolution for shareholder approval seeking to subscribe to the shares of MIC Insurance Web Aggregator.
Religare has told shareholders that it is required to fund and support its subsidiary in growth and hence it wants to provide assistance of up to Rs 15 crore. But Ingovern says that REL has not disclosed any details regarding the financials and the valuation of its subsidiary. Also, the details of the funding requirement by MIC and its current debt-service records are not available. Further, REL itself is involved in the business of providing insurance products to customers and it has put on record anything to demonstrate synergy between MIC and the existing REL insurance broking business.
"Investing in a web aggregator can also give rise to conflict of interest. The (REL) Board has not provided any rationale nor outlined any benefits which the company will derive by investing in a web aggregator. Given the above concerns, there is lack of clarity in terms of the business sense/motive behind the said investment as well as the benefits which it will bring to the company and its investors/shareholders. Also, given its significant upcoming payables in the form of loans, its existing capital needs to be deployed in its core business areas. We believe this IMC acquisition does not fit in with the overall core business of the Company and amounts to wrong capital allocation." Ingovern said in a report.
On a consolidated basis, the company’s borrowings (other than debt securities) stand at Rs 399.47 crore. The total liabilities (including financial and non-financial) stand at Rs 5416.44 crore as of March 31, 2023. The company has a significant amount of contingent liabilities as well as disclosed in its Annual Report 2022-23, Ingovern has said and warned the REL shareholders from voting in favour of the special resolution.
"Given the uncertainty and regulatory probe which Religare is already subjected to, as well as the imminent change in promoters and management which may take place post takeover by Burman group, the above investment should be kept at bay at this juncture," Ingovern said in its report.
