The Beginning of the Endgame of the Ranbaxy Saga

The combined market capitalisation of the companies promoted by the Singh brothers, Malvinder and Shivinder, is now down to Rs 83 billion from nearly Rs 206 billion on the eve of the Ranbaxy sale.

Mumbai/Delhi: Two meetings of the boards of directors this week, of Fortis Healthcare and Religare Enterprises, will be in the spotlight, given their promoters’ recent brush with legal and regulatory issues.

For the billionaire Singh brothers, Malvinder and Shivinder, former promoters of pharmaceutical major Ranbaxy Laboratories with substantial stakes in Fortis Healthcare and Religare, the legal woes are far from over.

Industry analysts and legal experts say this could mark the beginning of the endgame of the Ranbaxy saga, which began in 2008 when the promoters sold the family’s crown jewel to Japanese drug major Daiichi Sankyo.

Nearly a decade after the deal, the Singh brothers’ business empire is now just a shadow of its past, with group of companies struggling with large debts and poor profitability.

The group’s shrinking footprint is visible on the bourses, where there has been a steady decline in the stock prices and market capitalisation of the companies owned and promoted by them.

The combined market capitalisation of the companies promoted by the Singh brothers is now down to Rs 83 billion from nearly Rs 206 billion on the eve of the Ranbaxy sale.

“Though struggling with regulatory issues, Ranbaxy remained a market leader. In contrast, none of their current businesses – Fortis Healthcare or Religare Enterprises – can be called a market leader by any yardstick,” said a business analyst.

In contrast, the Max Group, owned by their uncle Analjit Singh, is a multi-business conglomerate spread over financial services, healthcare, real estate and hospitality, among others. Though their promoters are related, the two groups have a frosty relationship, with an unwritten rule of not poaching on each other.

Analysts say the Singh brothers failed to utilise the proceeds of the Ranbaxy divestment to scale up their healthcare and financial services businesses.

The brothers had received nearly Rs 95 billion (nearly $2.4 billion at the exchange rate then) for their 34.8% stake in Ranbaxy Laboratories. The group’s listed companies reported combined net sales of Rs 95 billion in 2016-17, down from Rs 103 billion a year earlier and marginally up from Rs 89 billion when Ranbaxy was part of the group. This translates into less than 1% annualised growth in group revenues during the period.

Their record on profits is even worse, with the group companies’ combined net profits down to Rs 1.7 billion in 2016-17 from Rs 7.7 billion in 2007-08.

In the same period, the group companies’ combined debt (on a gross basis) was up from Rs 76 billion in 2007-08 to Rs 171.5 billion at the end of 2016-17.

There are currently three listed companies owned and promoted by the Singh brothers – Fortis Healthcare, Religare Enterprises and Fortis Malar Hospital. The latter is a subsidiary of Fortis Healthcare.

Initially, there were expectations that group companies would see a rapid rise in revenues and profits as the promoters pumped additional capital into Fortis Healthcare and Religare Enterprises.

This triggered a rally in their stock prices after the Ranbaxy deal, but the company’s subsequent financial performance belied the Street’s expectations.

For example, Fortis Healthcare is now struggling to keep pace with its rival Apollo Hospitals after an initial ramp-up in revenues, thanks to a flurry of acquisitions in the initial years after the Ranbaxy deal.

In the first five years since its listing in 2007, the company’s revenues jumped seven times and it went past Apollo Hospitals to become the country’s largest hospital company in terms of revenues in 2012-13.

It then hit a growth bump as the expansion had been largely financed through debt, which proved costly when the economic slowdown hit in 2012-13. This led to the company missing out on growth opportunities in the past four years, helping Apollo to get back to the top. Fortis has reported net losses in three out of the last five years.

The group’s financial services arm, Religare Enterprises, has shown a similar growth trajectory and is now struggling to remain profitable after a phase of rapid growth following its listing in 2007. The company’s revenues were down 27% in 2016-17 and it has reported losses in four out of the last five years.

Industry analysts say the legal and regulatory woes of the Singh brothers are far from over. Amid allegations of siphoning off funds, the spotlight is now on the board of directors of Fortis Healthcare and Religare Enterprises. Amit Tandon, founder and managing director, Institutional Investor Advisory Services, a proxy advisory firm, said the board of directors of Fortis Healthcare should institute a forensic audit. “This will help them to come out independent of the promoters,” he said.

In another attack on corporate governance practices in Fortis Healthcare, another proxy advisory firm, Stakeholders Empowerment Services (SES), noted in a report titled ‘Fortis Healthcare: Fiefdom of Singh Brothers’ that “the Indian ingenious mind could have discovered a way for avoiding Related Party Transaction approval. Do transaction with nondescript company and then buy the company, very simple”.

J. N. Gupta, managing director, SES, too, called for a thorough investigation of the affairs of both Fortis Healthcare and Religare Enterprises.

By arrangement with Business Standard.