Religare nearly halves amid vortex of bond redemptions, write-offs & pledged shares

However, on June 29, Religare announced its annual numbers. On a consolidated basis the company posted a loss of Rs 174 crore for year ending March 2017 as compared to a loss of Rs 47.65 crore in the previous year. But for March quarter, the company posted a loss of Rs 50.59 crore. Higher losses werer on account of write-offs in its lending arm Religare Finvest.

Finally, reports have attributed the fall in Religare stock to pledged shares being sold by the lenders as its share price fell. However, the company has denied such claims. Nearly 87.8 percent of promoters' holding has been pledged. Normally, lenders take a hair-cut of 50 percent of the value of shares. But as the share prices started to tumble, market’s expectation of the lender selling the shares is not entirely wrong. The management could have avoided it by bringing in more margin.

Religare’s promoters Malvinder Mohan Singh and Shivinder Mohan Singh have been on a sell mode for sometime now. It started with the sale of their flagship venture Ranbaxy Laboratories, which did not go as smoothly as they would have expected. The buyer Daiichi has filed a case against them after a whistle blower disclosed all that was wrong in the company leading to a huge fine by US authorities. The Japanese pharma major ultimately sold Ranbaxy to Sun Pharma.

The hospitality business of the Singhs – Fortis – has recently been cleared by the Delhi High Court. Even in the case of Religare the company has sold its insurance, asset management and wealth management business and will be selling their health insurance business.

In the 2016 annual report the chairman in his speech has pointed out that company will be focused on lending, health insurance and capital market business. However, following RBI's clamp-down on lenders, Religare's auditor, Price Waterhouse, raised concerns around creditworthiness of borrowers, credit appraisal and loan sanctioning mechanism followed by the company. The auditors have also pointed out the possibility of collusion or improper management override of controls and material misstatements.

With health insurance to be sold and the process of lending in question, Religare will only have to rely on its broking business for survival and growth. With its equity base meant to service a number of businesses, it will be tough for the company to generate enough numbers to justify it.

At a time when big brokers are entering new areas for growth to reduce their dependence on broking to capitalize on financial inclusion, Religare will be falling behind in the rat race. If the company continues to post numbers as it did in the March quarter, the share price can come under pressure which can make the lenders with whom the shares are pledged jittery.