Happy Sunday folks,

Most special-situations plays we’ve discussed so far in the Special Situations sunday series are about a clean, simple corporate action: take a healthy parent, spin out a non-core piece, watch the discount close.

Religare Enterprises Limited (REL) is none of those things.

For six years, REL was the company nobody wanted to own. The Singh brothers, its founders and former promoters of Ranbaxy, were arrested in 2019 over the alleged diversion of Rs. 2,300 crore from its NBFC arm.

Since 2018, the flagship lending business has sat under an RBI Corrective Action Plan. Lenders had it classified as fraud. A Delhi High Court battle dragged on. Through all of this, hidden inside the wreckage, was Care Health Insurance, the country’s second-largest standalone health insurer.

In February 2025, the Burman family of Dabur, after a bruising two-year takeover fight that included a SEBI intervention and a dramatic last-minute counter-offer from a US-based investor, completed an open offer at Rs. 235 per share and were finally designated as promoters.

In the twelve months since, three things have happened in quick succession:

In July 2025, the RBI withdrew the Corrective Action Plan on Religare Finvest Limited (RFL) and lenders dropped the fraud tag, ending a seven-year regulatory freeze on the NBFC.

In September-November 2025, Religare raised Rs. 1,500 crore through a preferential warrant issue, of which Rs. 750 crore came from the Burman group itself.

On February 14, 2026, the boards of REL and RFL approved a demerger scheme to carve out the entire financial services business from REL into RFL, leaving REL as a pure-play holding vehicle for Care Health Insurance.

Religare Enterprises - Historical stock price performance

Source: www.tradingview.com

That third step is the special situation. But to read it correctly, investors need to understand that this is not a one-shot demerger.

It is the first leg of a two-step structural reset, and the second leg - the one that actually unlocks value most shareholders care about - is entirely dependent on a regulatory threshold the new promoters do not yet meet.

Here is what is actually happening, why management chose this particular route, and how to think about the math.

Why Demergers Create Value

Skip to the next section if you’re familiar with the whys behind Demergers & how the value unlocking process works

When a company houses multiple, contrasting businesses under one roof, the market struggles to value it properly.

Fund managers who want exposure to a high-growth, asset-light insurer do not want to also pay for a still-rebuilding NBFC, a sub-scale broker, and a small affordable housing company. NBFC investors don’t know how to value an insurer. The result is a blended, middling valuation and a holding-company discount stacked on top, where the listed parent trades at a meaningful gap to the sum of its underlying stakes.

A demerger forces the market to price each business independently. Each separated entity attracts sector-specific investors and analysts, management gets dedicated focus and capital allocation, and each business pursues its own strategy unshackled from the others. The discount tends to evaporate. The mechanism works best when the businesses being separated have genuinely contrasting profiles: different growth rates, margins, capital intensity, investor bases and either one or both are undervalued.

India’s recent demerger wave has been busy. ITC carved out its hotels business in January 2025, a division consuming roughly 20% of capital while contributing 3-4% of operating profits. Reliance demerged from Jio Financial Services in 2023. Raymond and Aditya Birla Fashion split contrasting businesses in 2025. The Greenply-Greenpanel demerger of 2018-19 produced a multi-bagger child within two years.

In each case, the same logic held: a high-quality business buried inside a different-shaped parent had its multiple unlocked once it traded on its own.

Religare is a slightly more elaborate version of that thesis, because the operative phrase is not ‘unlock value through separation’ but ‘first untangle the structure, then go after the value’.

Why Religare’s Demerger Makes Sense

Four businesses, four very different valuation lenses

REL today is a Core Investment Company (CIC) - an RBI-registered holding-company NBFC that exists only to own stakes in its group entities. REL holds four operating businesses through majority stakes:

Religare Enterprises: Operating segments

These four businesses share a parent company but not much else.

• Care is a high-growth insurer that should trade on a price-to-book or price-to-GWP multiple similar to say Star Health and Niva Bupa.
• RFL is a now-debt-free, post-turnaround NBFC sitting on a pile of unlevered cash, waiting for a new CEO (who joined in May 2026) to actually start building its lending book.
• RBL is a small, sub-scale broker being repaired.
• RHDFCL is an early-stage HFC still losing money.

Each of these belongs in a different investor’s portfolio.

Folded together under a CIC holdco structure, they get one confused blended multiple and a holdco discount on top of that.

Why now: the conditions for restructuring are finally in place

This demerger could not have been credibly attempted before 2025. Three things had to change first.

Promoter clarity. After the Singh brothers’ exit in 2018, REL spent six years as a promoter-less listed entity, which is an unusual and uncomfortable structure for the kind of strategic surgery a demerger requires. The Burman Group’s designation as promoter in February 2025 ended that vacuum. The promoter group has since increased its stake to roughly 30.3% through a combination of open market purchase and warrants. Further conversion of warrants are expected to take this to around 34%.

Regulatory cleanup. The RBI’s withdrawal of the Corrective Action Plan on RFL in July 2025, followed by lenders formally removing the ‘fraud’ tag, restored RFL’s ability to lend. Without this, demerging the financial services basket into RFL and listing it would have been a non-starter.

Capital availability. The Rs. 1,500 crore preferential warrant issue, of which Rs. 600 crore is earmarked for Care, Rs. 250 crore for RHDFCL, Rs. 200 crore for RBL and the balance for general corporate purposes, ensures that each business has enough capital for its first phase of growth as a separated entity. About Rs. 410 crore had been received as of Q3 FY26 (Rs. 375 crore upfront premium plus Rs. 35 crore of conversions). The remaining warrants will convert by March 2027.

Until all three were in place, a demerger would have produced a listed entity that could not lend, did not have a promoter to vouch for it, and was undercapitalised.

By February 2026, all three boxes were ticked.

The Care gem, and why it drives the thesis

It is worth slowing down on Care, because in any sum-of-the-parts view of Religare, Care is overwhelmingly where the value sits.

Care Health Insurance is India’s second-largest standalone health insurer (SAHI). In retail health, it has been gaining share consistently, moving from 7.7% of the SAHI retail market in FY22 to 19.7% by FY26.

It holds 11.6% of the total industry market share.

The financial profile, after a one-time accounting transition, looks like this:

Care Health Insurance - Summarised financials

One detail worth understanding upfront. From October 2024, the IRDAI mandated a switch from the older 50% Unearned Premium Reserve (UPR) method to a 1/n method for multi-year health policies. Under the old method, the full premium of a three-year policy was booked as Gross Written Premium in Year 1, with 50% kept as UPR. Under 1/n, premium is recognised evenly across the policy term.

The effect, in the transition year, is mechanical: reported GWP and PBT under 1/n are lower than they would have been under the legacy method, because revenue that was previously front-loaded is now being smoothed across multiple years.

This matters for investors because reported headline numbers under 1/n understate the underlying growth in the transition year.

As for Care’s growth prospects, management has guided to 18-24% sustainable GWP growth and a combined ratio gradually trending to 100% over the next two years, driven primarily by operating leverage on renewal costs rather than claims improvement.

Care also benefits from two recent tailwinds.

First, the GST on retail health insurance premiums was cut from 18% to zero, a change peers have used to materially improve affordability and accelerate volume growth.

Second, while losing the Input Tax Credit on commissions sounds painful, insurers have largely passed this on to distributors by restructuring commissions to be GST-inclusive, neutralising the P&L impact. Care has executed the same playbook.

In short: a 22% market-share (Total SAHI not just retail SAHI) insurer in a sector growing 20%+, gaining retail share, mid-teens ROE for the fourth consecutive year, sitting inside a holdco that trades at less than 1x sales. That mismatch is the entire thesis.

The Mechanics - A Two-Step Plan, Step 1 Announced

What Step 1 actually does

The scheme approved by the boards of REL and RFL on February 14, 2026 is a vertical demerger of REL’s entire ‘financial services’ business into RFL, which is currently REL’s 100% subsidiary. Care Health Insurance stays inside REL.

Religare Enterprises - The Demerger split

As consideration for the transfer, RFL issues new equity to existing REL shareholders on a 1:1 basis. So, for every one share held in REL, the shareholder receives one share in RFL.

The shares currently held by REL in RFL are cancelled. Post-scheme, RFL has the same shareholding pattern as REL today - promoters at ~30.27% (post warrant conversion) and public at ~69.73% - and is then listed on the BSE and NSE.

Crucially, REL retains its CIC status, RFL retains its NBFC registration, and the IRDAI relationship with Care is undisturbed. No fresh regulatory clearances are required for the operating registrations themselves.

So at the end of Step 1, a current REL shareholder owns:

• the same number of REL shares, now representing a pure Care Health Insurance holdco (63.2% stake in Care, plus whatever residual cash sits at the parent), and

• a matching number of new RFL shares representing the financial services basket (NBFC + broking + HFC + e-Gov + the unlevered cash pile).

The unspoken Step 2: why didn’t they just merge Care into REL?

This is the question every analyst asked on the Q3/Q4 FY26 concall.

If the goal is to give shareholders clean exposure to Care, the obvious move would have been a reverse merger. Fold Care upward into REL so that REL itself becomes the insurance company, eliminating the holdco discount entirely.

On the Q3 FY26 call (Feb 16, 2026), management’s answer was perhaps diplomatic. CFO Pratul Gupta said the scheme as approved was “the first step in that direction”, adding that “in future, we will take some incremental steps to complete the demerger in a complete sense in terms of insurance business.”

By the Q4 call three months later (May 13, 2026), the framing had become more direct. Arjun Lamba, promoter director and now Executive Director of REL, was asked by multiple investors why Care wasn’t being reverse-merged directly.

His response was unusually candid: “we understand that the value is in Care. We are cognizant of that. That’s why we are separating the entities, creating clear paths.” When pushed on whether the current scheme could be amended to fold Care into REL and eliminate Holdco structure, he was equally clear: “We don’t want to amend the scheme. Whether a subsequent scheme can be done, when it can be done, we shall see at an appropriate time.”

Two things to read from this.

First, Step 1 (the financial services carve-out) is going through as is. Management will not re-open the scheme to accommodate Care. Second, Step 2 (a subsequent scheme involving Care) is explicitly contemplated, with timing contingent on conditions the promoters do not yet control.

The substantive reason for the delay is a single IRDA rule. Under Indian insurance regulations, an entity proposing a reverse merger of an insurance company into its non-insurance holding company must have a promoter holding of at least 25% in the insurance entity itself. Today, Burman group’s look-through stake in Care, computed through their roughly 30% holding in REL multiplied by REL’s 63.2% holding in Care, works out to approximately 18-19%.

Without that 25% threshold, the IRDA simply will not approve a reverse merger. Management has publicly acknowledged the gap. Promoter Director Arjun Lamba, on the Q4 FY26 call: “We’ve increased our stake last quarter. We’ll see as and when at an appropriate time, we’ll see what we have to do…we are well aware of these facts and figures.”

There are essentially three paths to close that 7-percentage-point gap:

1. The Burman group keeps buying. They have already taken stake from below 26% to roughly 30.3% through the warrant subscription and open-market purchases in Q4 FY26 (in REL), and full conversion of warrants would take it closer to 34% (in REL)

To get the look-through to 25% in Care, however, REL promoter holding needs to be closer to ~40% (in REL), which would require continued buying and is constrained by SEBI takeover rules (the ‘creeping acquisition’ limit of 5% per year for promoters between 25% and 75%).

2. Bring in a new promoter alongside. Care’s existing PE investor, Kedaara Capital, or the founding CEO Anuj Gulati (who still holds 5.5%), could in principle be classified as promoters, which would change the look-through math. On the Q4 call, management denied any sign that Kedaara intends to exit but acknowledged the option exists.

3. Reduce Care to an unlisted subsidiary outcome and pursue a different listing route. Less likely given management commentary.

None of these is trivial. What’s obvious from management’s careful language and from the Max Financial precedent, is that the eventual destination is a reverse-merger or direct-listing structure for Care. The current demerger is the structural bridge that gets the financial services pieces out of the way first, so that when conditions are conducive, the Care-into-REL move can be executed cleanly without dragging along three other unrelated businesses.

Timeline: where things stand today

Management has consistently guided to a 15-18 month total timeline, with RFL’s listing expected in the first quarter of FY28 (April-June 2027).

The Valuation Math. Is There Value?

A standard disclaimer before proceeding: what follows is a simple, illustrative if-then framework using publicly available peer multiples and trailing financials. It is not a target price, not a recommendation, and not a prediction. It is an exercise to help readers think about how the market might value these businesses once the structure changes.

Religare trades around Rs. 237-240 per share in late May 2026, for a market capitalization of roughly Rs. 7,900-8,000 crore on a base of about 33.3 crore shares outstanding. The 52-week range has been Rs. 196 to Rs. 295.

On reported FY26 PAT of Rs. 73 crore, the trailing PE is well above 100x but as in any holdco with a fast-growing operating subsidiary, the trailing PE is the wrong lens. Sum-of-the-parts is the right one.

Valuing Care (the part REL keeps)

Care had FY26 net worth of roughly Rs. 2,988 crore on an Ind AS basis, growing to a projected ~Rs. 3,700 crore by FY26-end after factoring in the balance of the Rs. 600 crore capital infusion and the year’s earnings accretion. FY26 PAT on Ind AS came in at Rs. 387 crore.

How do peers trade?

Religare Enterprises - Peer valuation comparison

Applying a conservative range of 3x to 5x book value to Care’s projected FY26 net worth of roughly Rs. 3,700 crore (reflecting that it sits below the larger listed peers on disclosure quality and is mid-teens ROE rather than premium) gives an implied equity value for Care of Rs. 11,100 crore to Rs. 18,500 crore on a 100% basis. REL owns 63.2% of that, which translates to roughly Rs. 7,000 crore to Rs. 11,700 crore of attributable value.

On a PE basis: at the 35-50x range (conservative versus the SAHI peer cluster of 56-90x), Care’s FY26 Ind AS PAT of Rs. 387 crore implies an equity value of Rs. 13,500 to 19,400 crore, of which REL’s share is Rs. 8,500 to 12,300 crore.

The honest range, blending both lenses and applying the standard 30-50% holdco discount that the market typically takes on listed companies whose primary asset is a non-listed operating subsidiary, lands somewhere between Rs. 5,000 crore and Rs. 8,000 crore of post-discount value attributable to Care, against REL’s full market cap today of Rs. 7,900 crore.

In other words: REL’s current market price is more or less fully accounted for by Care alone, even after a steep holdco discount. The other three businesses are getting almost no credit.

Valuing the financial services basket (the part going to RFL)

This is the part where, on a back-of-the-envelope basis, the upside hides.

RFL standalone: Net worth of roughly Rs. 900 crore, of which Rs. 591 crore is cash and liquid investments. The good SME loan book is only Rs. 60 crore. There is no debt. CRAR is 261%. PAT of Rs. 139 crore in FY26 was driven by recoveries, not core lending. The book value alone, treating cash as cash, anchors RFL standalone at Rs. 800-900 crore.

RBL (broking): Net worth of Rs. 376 crore, FY26 PAT of Rs. 22 crore, with a new CEO (Vijay Kumar Goel from Motilal Oswal) only joining in February 2026 and a turnaround plan still being articulated. At a conservative 18-20x on a forward PAT recovery of Rs. 25-35 crore as the funding book scales, RBL is worth Rs. 450 to 700 crore. The new MTF (margin trade funding) initiative could be worth more.

RHDFCL (housing finance): Net worth of Rs. 186 crore, currently loss-making but with management targeting a ‘four-digit’ (Rs. 1,000+ crore) AUM franchise over the medium term. Today it is mostly a book value asset, with the Rs. 250 crore capital infusion to be staged in. A reasonable mark is around 1x net worth post-infusion, plus the value of the unutilised CRAR headroom — call it Rs. 200-400 crore including the incoming capital.

Optionality from legacy recoveries: RFL is pursuing approximately Rs. 791 crore (plus accrued interest) of FD that Lakshmi Vilas Bank (now DBS Bank) allegedly appropriated against erstwhile-promoter loans, and roughly Rs. 815 crore of corporate-loan-book provisions where some recovery is conceivable. These are fully written off, so any recovery is upside, but timing and quantum are entirely unpredictable. A modest haircut-adjusted expected value might be Rs. 100-300 crore.

Adding these up, RFL post-demerger could reasonably be worth somewhere between Rs. 1,600 crore (sum-of-book-values + cash) and Rs. 2,400 crore (with a turnaround multiple on the operating businesses and partial credit for legacy recoveries). Spread across the same ~33.3 crore share count, that is roughly Rs. 50 to Rs. 70 per share against REL’s current price of Rs. 237.

Pulling the SOTP together

The midpoint of this back-of-the-envelope SOTP comes in at roughly Rs. 252 a share against today’s Rs. 237. Hardly exciting. The low end is below today’s price, the high end roughly 30% above.

On the surface, this is not a screaming mispricing on Step 1 alone.

Which is consistent with what management is signalling. The Step 1 demerger gives the financial services basket a clean home and an independent listing, but it does not magically eliminate the holdco discount on Care, because Care is still inside REL as a ~63% subsidiary.

Where the real optionality is: Step 2

The asymmetric upside in this story lives in the eventual reverse-merger or direct-listing of Care.

If, at some future date, REL is able to merge Care upward either by the Burmans crossing the 25% IRDA threshold themselves or by bringing in a co-promoter to add to the look-through - the holdco discount on Care, currently haircutting 30-50% off its attributable equity value, would substantially collapse.

On the same Care valuation range of Rs. 11,100 crore to Rs. 18,500 crore at 100% scale, eliminating the holdco discount would move the Care-attributable equity value (at REL’s 63.2% stake) from Rs. 5,000-8,000 crore (post-discount) to Rs. 7,000-11,700 crore (no discount). This is an uplift of roughly Rs. 2,000 to Rs. 3,700 crore on the SOTP, or Rs. 60 to Rs. 110 per share.

So the honest framing for Religare is: Step 1 is largely priced in, give or take a 20-30% range depending on what the market eventually assigns to RFL standalone.

Step 2 is where the meaningful re-rating sits, but Step 2 is conditional on regulatory thresholds the promoters do not yet meet, and on a regulatory path the IRDA has not yet formally cleared for the SAHI segment.

Risks and what would invalidate the thesis

Step 2 never happens. The Burmans stop short of 40% in REL, no co-promoter (Kedaara or Anuj Gulati) joins, or IRDA holds the line on SAHI reverse mergers. Care stays a 63.2% subsidiary, the holdco discount persists, and Step 1 alone is largely already in the price.

Care growth disappoints. Combined ratio stalls above 102%, GST-driven retail volume tailwinds fade, or SAHI peer multiples compress. Care’s mid-teens ROE (vs. 20%+ for premium peers) leaves valuation exposed to a sector reset.

RFL ramp-up is slower than expected. The new CEO joined in May 2026 and disbursements remain “insignificant” per management. The Rs. 591 crore cash pile is unlevered and drags on RoE until deployed; if broking and HFC fail to scale, RFL lists at or below book — capping Step 1’s upside.

Legacy recoveries take longer. The Lakshmi Viles Bank / DBS FD case is sub-judice in the Delhi High Court; management won’t commit on timing or quantum. Treat as pure option value, not a base-case input.

Equity dilution at RFL. The Rs. 1,500 crore preferential capital is largely earmarked. Scaling the NBFC and HFC books will need a follow-on raise, diluting REL shareholders who came in via the demerger entitlement.

The Bottom Line

History doesn’t repeat. But it does rhyme. There are several examples of demergers that started as multi-step structural cleanups and took years to play out before the multi-bagger leg arrived.

The 2018 HSIL split we described in one of our previous writeups, the 2019 Greenply-Greenpanel demerger, the Max Financial roadmap of 2025 - all started life as multi-step structural cleanups that took years to play out before the multi-bagger leg arrived.

Religare looks closer to that template than to the clean single-step demergers the market typically prices in advance.

Hope this was insightful. Drop a comment if you have questions.

Yours

Rahul Rao, CFA