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Religare’s takeover of Hichens leaves many questions unanswered...

Before we break the suspense, let’s give the usual spin. London’s oldest stock broking firm has accepted an open offer from Ranbaxy’s Religare Capital Markets Ltd. (RCML), which will pay Rs. 226.05 per share, valuing Hichens, Harrison & Co. Plc at Rs.4.4 billion. “Our businesses are complementary and this will help both leverage the expertise, acumen and capabilities of the other,” averred S. Godhwani, MD, Religare Enterprises (parent company of RCML), to B&E. Hichens surely has a strong hold in emerging markets and on the face of it, the deal seems appropriate for increasing Religare’s global presence. Well, on the face of it...

Of course, the deal will not only increase the portfolio of investment products that Religare will be able to offer domestically (apart from the global capital that can be sourced by it cheaply), but it would also give Religare the opportunity of “creating a global distribution platform,” as told by S. Nath, Director, RCML.

But experts are perhaps ignoring a few critical facets. Crisil has already put Religare’s short term debt program on ‘Rating Watch – Negative Implications’, due to the debt it’ll have to mobilise for the deal. Secondly, Religare Enterprises, the holding concern, as per late 2007 figures, only has a 3.89% of the Rs.4 billion Indian financial services sector, clearly pointing that it could well have invested in increasing domestic shares first. And lastly, though share prices post the April 5th deal, have remained more or less constant (Rs.370 avg, BSE), trading volumes have most strangely gone down from a high of 92,944 traded shares (March 25, 2008) to a classic low of 5,460 shares (April 11, 2008), displaying a clear negative trend. Without doubt, the most imperative measure for Religare is nothing but managing cash...and a lotta debt!

Pawan Chabra

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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