Edelweiss Group is on the path of consolidating its position in wealth management and retail broking business. On Wednesday, it announced the acquisition of Religare’s retail broking business, having a networth of Rs 140 crore, at a premium of Rs 100 crore (as indicated by the company to media) – putting the total value of the deal at near Rs 240 crore. Religare Enterprises’ retail broking business, which includes securities & commodities broking and depository services, had clocked revenues of Rs 412 crore in the previous fiscal. The acquisition will provide Edelweiss Wealth Management a pan-India distribution network of around 1,250 points of presence (owned and franchised), spanning 418 cities and including over 90 branches. It will also add 1 million clients to its customer base. Edelweiss will retain the near 2,000 employees of Religare, and this seems to have been a key factor in clinching the deal. “We have had interest from many potential suitors for this business and chose Edelweiss because they were keen on retaining Religare’s workforce in its entirety, and this was one of our biggest priorities,” said S Lakshminarayanan, executive chairman, Religare Enterprises.
This acquisition follows two earlier inorganic moves that saw Rooshnil Securities and Anagram Capital come into Edelweiss’ fold in 2001 and 2010, respectively. The company’s aggressive intent in the segment has been well articulated in its annual report for the preceding fiscal in which it said: “With an increasing number of Indian retail investors getting comfortable with having advisors and wealth managers, we see the opportunity space expanding rapidly and will continue to invest in the business to gain market share.” Rashesh Shah, chairman and CEO of Edelweiss Financial Services, has said that he estimates the $250-billion wealth management business in India to grow 4-5 times its current size by 2025. While speaking to media, he pointed out that the brokerage business is getting converted to wealth management, and the company needs product, technology, processes and people, all of which the Religare retail broking business offers.
He added that the acquisition will be just a plug and play for the company, besides it will triple the present customer base, for which a Rs 100-crore premium is being paid. Edelweiss expects it will take 18-24 months to earn back the investment in the acquisition. Religare Enterprises, which reported a loss of about Rs 138 crore in the preceding fiscal, has been exiting business considered non-core, even as it battles delinquencies in its lending business. It sold off its asset management business housed under Religare Invesco last year for a profit of Rs 310 crore. Its capital market business, which houses the retail broking business being sold, had also posted a profit of Rs 31 crore in FY17 on the back of revenues of Rs 490 crore, and is likely to have fetched the parent a hefty gain. It is no wonder that the Religare Enterprises stock ended Wednesday locked to the upper 5% circuit filter at Rs 73.15. The Edelweiss Financial Services stock gained a lesser 1.24%.
The wealth management and broking business contributed 25% of Edelweiss’ profits in FY17, and with this acquisition slated for completion by March 15, 2018, its share will likely rise significantly in the final results for FY18. This, especially, keeping in mind the heady growth in the current year. Nitin Jain, CEO of Global Wealth and Asset Management, Edelweiss Group, said, “The favourable macro-economic environment, supported by the growing financialisation of savings and rising affluence, has favourably impacted our wealth management business that has seen over 70% growth over the last fiscal.” The deal has clearly translated into a win-win for both parties – with the Singh brothers, promoters of Religare Enterprises, making another successful exit and Edelweiss grabbing a larger slice of a key market it has set its sights on. How well Edelweiss can leverage the network and customer base it has acquired remains the only question to be answered.