Why a cloud of scepticism looms over Indiabulls group despite strong financials

The chairman stresses the group wants to be low-profile and “small frogs of our well”. But the co-founders — Gehlaut, Rajiv Rattan and Saurabh Mittal, along with Banga (a professional who has been there from the beginning and is more like a co-promoter now) — always thought big. Perhaps they could afford to because one of their first investments, in 2000, came from steel baron LN Mittal. LNM Holdings came in with angel funding of $1 million in broking start-up Indiabulls Financial Services Ltd (IBFSL). Mittal’s initial investment, by virtue of stakes in two listed companies, has multiplied 60 times.

Yet, five years ago, when the India growth story was at its peak, the Indiabulls founder had blueprinted tall ambitions. “Financial services, real estate and retail are the key sectors for growth that will deliver double-digit growth over the next 20 years,” Rattan, who now oversees the power projects, told a business magazine in 2007.
Gehlaut had ventured that “we were very lucky to be at the forefront of the India growth story”. Buying And Selling Three years later, Banga had told ET that ArcelorMittal and Indiabulls would form a joint venture to explore opportunities to mine coal and iron ore. This led many to speculate that Indiabulls is Mittal’s vehicle for investments in India, which the Indiabulls promoters deny. “He is a passive investor,” says Gehlaut. Today, Banga says the mining ventures have been put on the backburner as there are no opportunities on the horizon. In retail, adds the chairman, “we made mistakes, cut our losses and exited.”

The organised retailing foray began with the acquisition of Piramyd Retail, a lifestyle retail and convenience story chain, in 2007. The view within the group then was that retailing and real estate were synergistic; today, it is a different story. “There are structural issues in the business because of the high costs of retail estate,” reckons the chairman. “Also, this is not the right time to get into retail; per capita income has to go up three times for retailing to work.”

Similarly Indiabulls has pulled the plug on financial services forays that included insurance, mutual funds and credit cards. The promoters also realised that institutional broking “was not for us,” and hence shut it down. “We are practical people; we believe cash is king and that we have to emerge with a strong balance sheet,” says Gehlaut.

To be sure, at a time when much of India Inc is scrounging for liquidity, Indiabulls is awash in liquidity, which stood at Rs 6,000 crore at last count. Five listed companies are expected to grow revenues from Rs 5,800 crore in the last fiscal year to Rs 7,315 crore by March 2013; and posttax profits from just under Rs 1,300 crore to Rs 1,730 crore. “We do not want to grow at more than 20%,” says a poker-faced Gehlaut.

If Indiabulls’ financials look strong — at least on paper — during tough times, observers point out that it’s because of their strong political connections. In the past, too, repeated run-ins with the market regulatory amounted to zilch with the group emerging unscathed every time.

Perhaps it’s these alleged leanings that the Veritas analysts alluded to when they observed that “the association of reputed institutions, individuals and organisations within the company is vexing to say the least.”

“We are as connected in political circle as any other business group. We have no special connections,” insists Gehlaut.