Singh brothers’ downhill race

Two meetings of the boards of directors this week, of Fort is Healthcare and Re li ga re Enterprises, will be in the spotlight, given their promote rs’ recent brush with legal and regulatory issues.

For the billionaire Singh brothers, M alvin der and Shiv in der, former promote rs of pharmaceutical major Ran baxy Laboratories with substantial stakes in Fort is Healthcare and Re li ga re, the legal woes are far from over.

Industry analysts and legal experts say this could mark the beginning of the end game of the Ran baxy saga, which began in 2008 when the promote rs sold the family’ s crown jewel to Japanese drug ma jo rD a ii chi Sank yo.

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

The group’ s shrinking foot print is visible ont heb ours es, where there has been a steady decline in the stock prices and market capital is at ion of the companies owned and promoted bythem.

The combined market capital is at ion of the companies promoted by the Singh brothers is now down to ~83 billion from nearly ~206 billion on the eve of the Ranbaxysale.

“Though struggling with regulatory issues, Ran baxy remained a market leader. In contrast, none of their current businesses—Fort is Healthcare or Re li ga re Enterprises—can be called a market leader by any yard stick ,” said a business analyst.

In contrast, the Max Group, owned by their uncle Analjit Singh, is a multibusiness conglomerate spread over financial services, health care, 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 tout ilise the proceeds of the Ran baxy divestment to scale up their healthcare and financial services businesses.

The brothers had received nearly ~95 billion( nearly $2.4 billion at the exchange rate then) fortheir34.8per cents take in Ran baxy Laboratories.

The group’ s listed companies reported combined net sales of ~95billion in 2016-17, downfrom ~103 billion a year earlier and margin ally up from ~89 billion when Ran baxy was part of the group. This translates into less than one percent annual is ed growth in group revenues during the period.

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

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

There are currently three listed companies owned and promoted by the Singh brothers— Fortis Healthcare, Re li ga re Enterprises and Fort is Mal ar 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 promote rs pumped additional capital into Fort is Healthcare and Re li ga re 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 rampup 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 per cent 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.