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The audacious Singh brothers

The audacious Singh brothers

Malvinder and Shivinder Singh shocked India Inc. when they sold out Ranbaxy two summers ago. Their next stunner: build a financial giant with $100-billion assets and grow what is already Asia's biggest hospital chain.

With Rs 10,000 crore, you could buy two customised Boeing 787 jets, a 400-foot yacht, a castle in Scotland, an island in the Mediterranean, take the family on a surprise space trip, and still have much of what you started with left in the bank. But when you have spent most of your adult years in postreforms India brimming with ambition, have oodles of purpose, and want to shut up critics who say you recklessly sold a family enterprise built over nearly six decades, you take a different road. You spend it attempting to build an empire bigger than what your father left you.

Meet Malvinder Singh and younger brother Shivinder, who are building an empire where resources are not on budget. Nor is ambition or the guts to take gambles. "By nature, I am a risk taker but I am not reckless," says the first-born of Parvinder Singh, the late Chairman of Ranbaxy Laboratories, who's credited with building the market-leading drug maker. "I am in no hurry to spend the money. We will use it wisely and strategically." The money Malvinder is referring to is some Rs 10,000 crore from the sale of more than 35 per cent stake in Ranbaxy to Daiichi Sankyo, Japan's third-largest drug maker, in June 2008.

A quick take first on the Singh brothers' motley conglomerate that is making bold buyouts and broadly evolving along two strong, distinct lines: healthcare and financial services. Fortis Healthcare, the umbrella company under which acquisitions worth Rs 4,027 crore-of Wockhardt Hospitals and Singapore's Parkway Holdings- have been made in the last nine months, has raced to the #1 slot among hospital chains in Asia. In doing so, it has overtaken domestic rival Apollo Hospitals Enterprise Ltd, top dog in the industry in India since 1983.

Religare Enterprises, a financial services powerhouse in the making, too, seems to be hitting its stride. It intends growing its $6.5 billion assets 15-16 times in three years. A wild dream? Not really-Religare came within snatching distance of American International Group's (AIG'S) fund management business with some $89 billion assets in 32 countries. Richard Li, son of Hong Kong billionaire Li Ka-Shing, walked away with that deal for just $500 million but Sunil Godhwani, the man driving Religare, is not fazed. He is confident that he will have a business of $100 billion assets within three years-putting it in the league of companies such as American Express.

Hichens Harrison^Rs 448 crReligare EnterprisesApr. 2008
Lotus Mutual FundUndisclosed#Religare EnterprisesOct. 2008
MHDFC*Rs 93 crReligare EnterprisesMay 2009
Wockhardt HospitalsRs 909 crFortis HospitalsAug. 2009
Northgate Capital LLCRs 1,000 crReligare EnterprisesFeb. 2010
Dassault Falcon 7XRs 155 cr**Religare VoyagesFeb. 2010
Parkway HoldingsRs 3,118 crFortis HospitalsMar. 2010
^ Acquisition before the Ranbaxy sale. # reportedly at less than Rs 100 crore. *Maharishi Housing Development Finance Corp. ** Approximate, Source: BT Research

Now that Malvinder, 38, and Shivinder, 35, and key lieutenant Godhwani, 46, have your attention, read on. The markets spotted the Singh Empire-II early: the combined market cap of the group's listed entities - Religare, Fortis and software solutions firm Religare Technova-today is double the Rs 5,000 crore valuation they enjoyed at the time of the Ranbaxy sale. The Bombay Stock Exchange's benchmark index has risen about one-tenth since.

The most telling is the way the markets value Fortis. In fiscal 2010, its price to earnings multiple was 75.7 compared to Apollo's 31.5, and the current financial year's ratio, estimated by online trading house ICICI Direct, is close to 40 versus Apollo's 23.5- implying the markets are reposing faith in faster growth and better profitability at Fortis.

Health Ahead
The Malvinder-Shivinder-Godhwani trio has a demonstrable head start in Fortis (the Parkway deal increased Fortis' hospital bed count by 40 per cent to over 10,000). With just nine beds for 10,000 Indians (the global average is 40), Fortis operates in a hugely under-hospitalised market.

As urban incomes and disease incidence rise in the country-India already has the most diabetics in the world and will have the highest cardiac patient population in the coming years-Fortis and other hospital chains will be in an enviable position given that 80 per cent of the market is serviced by private hospitals. In the next three years alone, demand in hospital and allied sectors will more than double to touch $77 billion revenues by 2012, most of it met by private hospitals, according to a November 2009 study by YES Bank and industry body Assocham.

With the Parkway acquisition, though, Fortis, which closed the nine months to December 2009 with Rs 608 crore revenues, is training its eyes beyond India in its quest for what Shivinder, the company's Managing Director, calls a "global healthcare delivery model". The problem with the model is that there are no known prototypes-globally, either you have hospital chains addressing basic needs or you have standalone premium marquee hospitals.

Fortis is attempting to straddle both these worlds and Parkway, Shivinder reckons, is the best vehicle to do that. One key concern for Fortis, for instance, has been transferring expertise on procedures like bone marrow transplant or use of stem cells across its chain. "Parkway has marquee hospitals as part of a chain. And they have a model of transferring IP (intellectual property) across the chain," says the younger Singh.

Add to that the medical value travel (read: medical tourism) market. About 40 per cent of Parkway's patients come from this segment as against a mere 5-7 per cent for Fortis. On the other hand, Fortis can help Parkway with its emerging markets model that hinges on low cost yet delivers high quality services at multiple price points. "Our productivity is probably the highest in the world, and we can help, especially as Parkway expands," he says.

That could help dent some arguments that Fortis may have overpaid for the Parkway buy. When the news of the acquisition-at a price four times revenues and 23 times operating profits forecast for calendar 2010 -broke, it was dubbed a "tad expensive" by brokerages such as Citigroup. CLSA Asia Pacific Equities downgraded the Parkway stock to 'underperform' after noting that its "valuation upside looks limited given the business fundamentals".

Others see gold in the medium to long term. "We believe this acquisition would give the combined entity the benefit of an unparalleled medical talent pool in Asia and also access to best-in-class practices," says ICICI Direct analyst Rashesh Shah.

Singapore analysts also believe that the deal will lead to Parkway's associate, Parkway Life Reit, a listed real estate investment vehicle, eventually acquiring the real estate assets of Fortis. However, regulations and the management view on that are not yet clear.

The Singhs are steadfast in their belief. Fortis has been pegging away at Parkway shares through market purchases, raising its stake to 24.8 per cent. That could well go up to a shade below 30 per cent, the threshold beyond which Singapore requires acquirers to make an open public offer in the case of companies listed there.

Further, to juice out group synergies, Malvinder is shifting base to Singapore. "Health care is a very local and also a very sensitive subject. I am moving there to be a part of the Parkway system. (Just) by travelling there often, I will not be able to understand how to build on existing capabilities," he says. That focus is so all-consuming that he and Shivinder quit their board positions at Religare and made Godhwani the Chairman-a very rare instance of a business family member stepping down from a board in corporate India.


  • Nikhil Bahel, ex-Goldman Sachs, as MD of investment bank Religare Hichens Harrison.
  • Anuj Gulati as CEO of Religare Health Insurance. Came from ICICI Lombard.
  • Sutha Kandiah as Global Head of Equity Capital Markets, and Rob Flynn as CEO for Asia, respectively. Both from UBS.
  • Koichi Kane, Takuya Koyama and Mitsuhiro Morita, brought in from KBC Financial Products, Japan, to kickstart Japanese operations.
The Godhwani Effect

Though enormously interested in financial services, Malvinder's decision to delink himself from Religare changes little on the ground as Godhwani has been driving the business since 2001. Religare is pretty much into every vertical in the financial services space barring banking and foreign currency trading. Unlike other home-grown financial sector aspirants, Religare has been quite aggressive in its retail presence. By the end of December, distribution covered 2,042 business locations spread across 546 cities- all built up within nine years. To put that in context, Kotak Mahindra Bank has 1,647 branches across India including banking, broking and life insurance businesses after over two decades of operations. Kotak's financials are, however, far more robust.

Most financial service players quickly realise that owning a bank is a crucial piece of the financial jigsaw puzzle to ensure access to low-cost funds. Religare, too, has not hidden such ambitions and has been reportedly interested in lenders in the past two years with names of targets such as Catholic Syrian Bank doing the rounds. But Godhwani is sure that unless it is an irresistible opportunity, it will remain just that- an opportunity.

"The ideal for every financial institution is to become a bank, but it may not be the best goal. It has to be aligned with our larger vision," he says. That vision translates into a strategy to keep the asset-heavy businesses in India and to grow feebased ones overseas. The Religare investment banking business works out of London, where it acquired the oldest brokerage, Hichens Harrison, two years ago. In India, the company has a joint venture with Dutch insurer Aegon and media house Bennett, Coleman & Co. Ltd for life insurance. In wealth management and private equity, it has taken foreign partners- Macquarie and Milestone. On the fund management side, after it acquired Lotus Mutual Fund during the distress days of October-November 2008, Religare added Northgate Capital to its portfolio in February this year.

There is more in the offing as it has dedicated another $1 billion to acquire more asset management companies. The intention at the global level is to eventually have a fund of funds (a fund that invests in other funds rather than investing directly into equities, debt or other asset classes). This structure will involve a holding company, or holdco, which will house the individual money managing businesses. And at some point, this holdco could be listed overseas. "We will manage $100 billion of assets and very soon. In not more than three years," Godhwani says.

Godhwani is low key but has cheerleader-like admirers. Munish Dayal, Partner, Barings Private Equity Partners, believes that the Religare Chairman and Singh brothers have it in them to grow a global institution out of India. "They have been able to build trust and transparency in a business in which it usually takes a generation to do so. Their ability to partner with some of the best names and their ability to attract top quality talent are key components when building a business," Dayal says.

Wary competitors say they watch the group closely to see if it is up to market-disruptive strategies with the enormous cash at its disposal. Their salted savings could allow the Singh brothers to build an empire much bigger than their father's. The Singh brothers' businesses have spent nearly $1 billion in growth and expansion both in India and overseas in the last two years, but most of that amount has been raised by debt and the rest from shareholders, including the promoter family.

Malvinder and Shivinder hold near equal stakes in all the group companies. Sunil Godhwani holds a minority stake, less than one per cent in Religare. Though the Singh family's personal wealth is not used directly by the companies, it can certainly aid frequent infusions to bolster the capital ratios of the group companies.

Heft of the Hoard
Fortis received an injection of Rs 997 crore in August 2009, a large chunk from the promoters, whose holding rose from 68.45 per cent to 76.47 per cent after the rights issue. The company is again looking to raise more funds to fund the Parkway deal. Similarly, Religare Enterprises recently boosted its equity via a Rs 1,850-crore rights issue. The promoters' stake in the company rose from 53.82 per cent to 57.14 per cent.

The listed entities, however, are not the only ones within the fold that are using the funds. A clutch of other businesses in corporate charter services, pathology services, and software and technology services falls within Godhwani's terrain.

Enhanced investments and restructuring are on the anvil for some of them. Super Religare Labs and Religare Voyages, the more mature businesses, had public offers being readied sometime ago. Non-committal about their listing ("We will list them at an appropriate time"), Malvinder predicts each of them will be a billion-dollar business sooner rather than later. He is acutely aware that his dreams of such a vast empire will need more than a few hands to build it.

Confront him with the history of Emperor Alexander - whose empire by conquest collapsed under its own weight before it could be consolidated when Alexander died- and Malvinder counters: "I will create many Alexanders, who will each take care of their empire." He points to the rapidly filling out senior tiers of group companies as evidence and the talent retained at acquired companies.

In health care, both Wockhardt and Parkway management teams have been retained-the former's Chief Executive Vishal Bali still runs that operation (rebranded Fortis Hospitals) and Tan See Leng, Parkway's CEO-designate, took over as planned. At Religare, several people have been hired across the board- Nikhil Bahel from Goldman Sachs to head the investment banking operations and Nick Holtby from UBS to head the global sales and trading desk.

Clearly, the Singh brothers and Godhwani are off to a good start. Financing is the least of the trio's worries, but what will test the mettle of the businessmen is how they consolidate their acquisitions and expand business in the years ahead. They will find themselves in the glare of attention from competition and the rest of India Inc. but what will keep them running hard will be their hunger to prove they can build businesses, not just sell them.