Why Analyst Sees This Ashish Dhawan-Backed Small Cap Stock Going Up 100%

Religare Enterprises has seen its shares surge up over 50% in the last six months. Analysts at Ventura see the stock going up further as they see the company making strong growth in housing finance and SME lending going forward.

The Religare Enterprises Analyst: Analysts at Ventura initiated coverage on the stock with a “buy” rating and a price target of ₹471. The brokerage firm expects the stock to reach that target in the next 24 months. The target indicates an over 100% upside from the stock’s last closing price of ₹234.40.

The Religare Enterprises Thesis: The brokerage firm said in FY19, Religare Enterprises Ltd (REL) initiated a significant debt restructuring process and a board overhaul. The company replaced the previous promoters and appointed Rashmi Saluja, an existing board member, as the new leader of the organization.

As part of this restructuring, REL also settled a one-time payment of ₹2,198 crore in March 2023, which included the settlement of non-convertible debentures (NCD) amounting to ₹20 crore. This settlement was reached with 16 out of the 17 lenders associated with its SME lending subsidiary, Religare Finvest Ltd (RFL), leading to the complete clearance of RFL’s dues totalling ₹6,064 crore. Consequently, REL has exited the Corrective Action Plan (CAP) imposed by the Reserve Bank of India (RBI).

The firm highlighted that during the challenging period spanning FY18-23, REL’s other businesses, including broking under Religare Broking Ltd (RBL) and affordable housing finance under Religare Housing Development Finance Corp Ltd (RHDFCL), a step-down subsidiary of RFL, were adversely affected, resulting in a decline in their business performance.

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The brokerage pointed out that amidst the restructuring efforts, the health insurance business under Care Health Insurance Ltd (CHIL) continued to thrive. The brokerage attributes the resilient performance of the vertical to the favourable trends within the health insurance sector and the group’s commitment to backing the vertical.

Going forward, analysts see the healthcare vertical continue showing good and profitable growth. Talking about the company’s housing finance subsidiary, the domestic brokerage firm said that it is poised for substantial growth in the upcoming period. Over the FY23-26 time frame, the analysts anticipate a robust expansion in the company’s housing finance loan book and Net Interest Income (NII) at a CAGR (Compound Annual Growth Rate) of 21.3% and 57.6%.

These growth projections are primarily driven by the low base figures of FY23 and the prevailing favourable industry trends within the affordable housing sector. The affordable housing industry offers significant growth opportunities, primarily due to the urgent housing needs of a substantial portion of the low-income population, the brokerage firm added. Additionally, the analysts believe that there is substantial untapped potential for establishing formal lending channels in Tier II and III cities.

The brokerage firm was also upbeat about the Burman family raising stakes in the company. The Burmans –who own Dabur India– have acquired a 21% stake in the company and also floated an open offer to acquire another 26%. However, media reports suggest that the company is not happy with the family’s offer. Ace investor Ashish Dhawan owns a 1.66% stake in the company.

Price Action: Religare’s share price was traded flat at 0.04% lower at ₹234.30 in the late hours of trading on Wednesday.

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