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BL Research Bureau

The acquisition of Lotus India AMC by Religare Enterprises may allow a quicker scaling up of Religare’s mutual fund business and help it diversify its business profile, to reduce dependence on the equity broking business. However, Lotus India AMC manages a relatively small asset base, with a low proportion of equity assets. The immediate payoffs for Religare from this addition may therefore not be very significant.

Religare Enterprises, which counts wealth management, insurance and other financial services among its offerings, currently relies to a significant extent on its equity broking activities for revenues and profit, with about two thirds of FY08 revenues and about three-fourth of profits generated by these activities.

Though the firm has entered both the mutual fund and insurance businesses, the former is still to make significant headway.

Under present market conditions, where new fund launches may find it difficult to garner significant assets, the buyout of an existing AMC may present an opportunity to scale up quickly.

Lotus’ fund management and distribution set up may also complement Religare’s own. However, a relatively small proportion of equity assets in Lotus’s portfolio (less than Rs 500 crore out of Rs 5,400 crore as of October) suggests low profitability from this business in the near-term.

Though the consideration for the deal has not been disclosed, the low proportion of equity assets in Lotus’s portfolio and current market conditions suggest that the deal could have been sewn at relatively modest valuations, much below the 5-7 per cent of the assets, which has been the norm for past deals in the mutual fund industry.

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