Should investors be concerned about the feud among Hinduja Brothers?

The brewing feud between the Hinduja brothers came to light on June 23 when a UK court ruled in favour of patriarch Srichand Hinduja and his daughter Vinoo (on the issue of control of Switzerland-based Hinduja Bank) against the other three Hindujas - Gopichand, Prakash and Ashok.

The feud between the four brothers stems from a letter they signed in 2014 which penned the long-followed family ideology - “Everything belongs to everyone and nothing belongs to anyone.”

The news is of particular significance as the strong bond shared between the brothers had long been one of the foundations of the multinational conglomerate.

Also Read: The Hinduja dispute: Four brothers and a document that is key to their $15.6 billion fortune

Nearly every time, each brother would be accompanied by at least one or two of his siblings. Perhaps, their joint appearances in courts over the Bofors case, where they were alleged to have taken commission, added to the persona, and the perception that the four siblings were in it together, through thick and thin. 

Should investors be worried about the love loss?

In India, there are currently three companies under the Hinduja Group banner - Ashok Leyland, IndusInd Bank and Gulf Oil.

The 52 percent promoter stake in flagship firm Ashok Leyland is split into four entities - Hinduja Automotive (35.01 percent), CitiBank NA (11.31 percent), Hinduja Bank (Switzerland) (4.98 percent), and Hinduja Foundries Holding (0.24 percent). Whereas promoter stake in IndusInd bank is split into IndusInd International Holdings (10.57 percent) and IndusInd (3.78 percent).

Despite a stake in Ashok Leyland, which directly comes under the ownership of SP Hinduja (via Hinduja Bank), experts feel the long-term outlook of the company remains fairly intact, though a "sentimental impact" cannot be ruled out in the short term, said, Atish Matlawala, Sr Analyst, SSJ Finance and Securities.

"There could be a sentimental impact on the stock prices of these companies in short term. However, we do not believe that there will be any impact on the growth prospects of these two companies," Matlawala said.

Long-term view

Despite little to no impact that Matlawala expects in the stock in the short term, he advised investors to stay away from both counters.

"Demand for Commercial Vehicles (CV) depends on GDP growth and looking at the current scenario we do not expect India’s GDP growth to recover in the near term. We believe FY21 will be a challenging year for Ashok Leyland and hence we recommend to avoid the stock in the near term," he said.

According to Matlawala, IndusInd Bank faces multiple headwinds ranging from scaling its granular deposit base to the rising risk of asset quality due to exposure to risky sectors like Telecom, Microfinance and NBFC. Muted loan growth in the current environment also remains a concern for the bank, he added.

"All these factors will lead to higher provisioning thus denting profitability and heightened systematic risk."