Initiate buy on Religare with target of Rs 364: Axis Capital

Published: December 31, 2014 2:00 AM

Religare Enterprises (REL) is a core investment company with diversified interests in SME lending, capital markets, wealth management...

Religare Enterprises (REL) is a core investment company with diversified interests in SME lending, capital markets, wealth management, insurance and asset management, making it one of the key beneficiaries of India’s cyclical upturn. It is revamping its business model by focusing on high-return businesses and exiting from entities like life insurance business, thus unlocking value and improving profitability. We initiate coverage with a buy rating and target of R364, which implies an upside of 15%.

In FY15, we expect the company to turn profitable on a sustainable basis. Upside triggers include pick-up in loan growth and improving return ratios in its lending business Religare Finvest. And strengthening of balance sheet after the planned exit from life insurance business. We believe management may look to unlock value in the AMC business. Uptick in capital market volumes as it is one of the largest players in retail and commodity broking.

Religare’s key focus segments – lending (Religare Finvest) and health insurance (Religare Health) – may see rapid profitable growth, while broking and wealth management segments will see a pick-up. We expect loan growth to pick up as loan mix calibration is almost over and economic conditions are favorable. Healthy asset quality lends comfort.

We expect health insurance (4% of revenue) business to break even by FY17. Although still nascent, it is most efficient among peers.

By Axis Capital

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