Reliance Capital Ltd BUY- Target Price (Rs.) -800- Greshma

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Reliance Capital Ltd BUY
Horizon -12 months
Target Price (Rs.) -800
Upside - 25%

Executive Summary Reliance Capital, a constituent of S&P CNX Nifty and MSCI India, is one of India's leading and amongst most valuable financial services companies in the private sector. It has a net worth of Rs. 7,963 crore and total assets of Rs. 30,096 crore as on September 30, 2010. It has interests in asset management and mutual fund; life and general insurance; commercial finance; stock broking; depository services; investment banking, private equity & proprietary investments; exchanges, asset reconstruction; distribution of financial products & other activities in financial services.



Key Investment considerations
 Largest NBFC in India
 Well diversified business model
 Tremendous growth seen over the period of 5 years
 Expected New Banking Licence
 Offers a number of products
 Expected growth in mutual fund market in India
 Expected IPO of Reliance Insurance Company Ltd. and other group companies.



Concerns
 MSME and retail sector may lead to higher NPAs.
 Liquidity crunch.
 RBI may raise rates again if the inflation doesn’t cool down.
 Increase in competition from NBFCs

Investment Summary:
 Largest NBFC in India: Reliance Capital is the largest non banking finance company in India having more than 2 crore customers, 6500 offices in India, over 22000 employees and 5 lakh business partners.
 Expected growth in mutual fund market in India: As compared to other developed nations, India’s overall participation in the Mutual fund market is very less. As of now only 4% of the country’s population invests in mutual funds as compared to 31% of USA’s population. As India is a developing nation and a growing economy this number is expected to rise in the future. Hence creating a bigger market for Reliance Capital.
 Well diversified business model offering a number of products: Reliance Capital offers a number of products under five main lines of business Asset Management, Insurance, Commercial Finance, Broking and Distribution, Other Businesses. This will help in de risking the business and will enable the company to gain from the coming growth.
 Expected New Banking License: With the expected deregulation of the banking sector we expect Relcap to get a new banking license in lieu of its current NBFC status and transform it to a banking company.
 Tremendous growth seen over the period of 5 years: Reliance capital has shown considerable growth in the past 5 years with respect to its customers, total assets, total income, market capitalization and net profit.

 Reliance Life Insurance (RLI): RLI a wholly owned subsidiary of Rcap is planning to break even in this fiscal. RLI is also planning an IPO. The IPO could be a key trigger and would help unlock value to RCap.


 IPO of various ADAG companies: A few ADAG companies like Reliance Inratel (are planning an IPO in the coming months. The group companies IPO could be a trigger for the counter and work in its favor.
Company Background: Reliance Capital Limited operates as a financial services company in India. It offers asset management services and mutual funds; and life and general insurance, including health, home, motor, travel, fire, engineering, marine, liability, and aviation insurance for the corporate and individual customers. The company also provides consumer finance and home finance, including mortgages, loans against property, business loans, loans for commercial vehicles and construction equipment, auto loans, loans against shares, and business loans, as well as industrial finance. In addition, it offers broking and distribution services in the areas of stocks commodities and derivatives, wealth management services, portfolio management services, investment banking, foreign exchange and offshore investment, and third party products. Further, the company involves in asset reconstruction, institutional broking, private equity, exchanges, and venture capital businesses. It also has operations in Singapore, Malaysia, the United Kingdom, and the United Arab Emirates. The company was incorporated in 1986 and is based in Mumbai, India. Reliance Capital Limited is a part of the Reliance Anil Dhirubhai Ambani Group.