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Event: RIL and Reliance Industrial Infrastructure Limited (RIIL), has agreed
to acquire a 74% stake in Bharti-Axa Life Insurance Co and Bharti-Axa General Insurance Co by buying out Bharti Enterprises' shareholding in the joint
ventures (JV). This transaction is subject to obtaining necessary approvals
from the insurance regulator IRDA and other relevant parties. On completion of the proposed transaction, RIL and RIIL (RIL has 45.4% stake in RIIL)
would effectively own 57% and 17% respectively in the JVs while AXA
would retain its current 26% shareholding and would continue to manage
the day to day operations. Moreover, AXA would likely have an option to
acquire upto 24% additional shareholding in the JVs from RIL and RIIL, as
and when the FDI regulations permit. The shareholdings will then be - RIL
(45%), RIIL (5%) and AXA (50%). In FY11, Bharti AXA Life collected premiums of INR7.9 bn and Bharti AXA GI collected gross direct premiums of
INR5.5bn.
Impact: This is the second foray by RIL in financial services after the recent
50:50 JV with DE Shaw in which it plans to invest US$150mn over a 10-yr
period. Media reports (Financial Express) indicate the deal value to be in the
range of US$300-400m. Given RIL's balance sheet size and FY11 cash and
cash equivalents of cUS$10bn we believe that the size of the investment is
unlikely to make any significant impact on RIL's valuations going ahead. Last
year when RIL invested cUS$220m in East India Hotels (EIH), it was perceived by the market as a non-core investment and the market reacted
negatively to that. The market is likely concerned about RIL's diversification
outside its core areas of energy / petrochemicals and the impact that could
have on management's focus on growing its energy business.
Reiterate Buy with INR1150 TP: With refining and petchem contributing
two-thirds of RIL's EBITDA, RIL should benefit from strength in downstream
margins, but clarity on gas production ramp-up and capital allocation will be
equally important going ahead. The stock is currently trading at 7.3x FY12e
EV/EBITDA, at the lower end of its three-year trading range.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Event: RIL and Reliance Industrial Infrastructure Limited (RIIL), has agreed
to acquire a 74% stake in Bharti-Axa Life Insurance Co and Bharti-Axa General Insurance Co by buying out Bharti Enterprises' shareholding in the joint
ventures (JV). This transaction is subject to obtaining necessary approvals
from the insurance regulator IRDA and other relevant parties. On completion of the proposed transaction, RIL and RIIL (RIL has 45.4% stake in RIIL)
would effectively own 57% and 17% respectively in the JVs while AXA
would retain its current 26% shareholding and would continue to manage
the day to day operations. Moreover, AXA would likely have an option to
acquire upto 24% additional shareholding in the JVs from RIL and RIIL, as
and when the FDI regulations permit. The shareholdings will then be - RIL
(45%), RIIL (5%) and AXA (50%). In FY11, Bharti AXA Life collected premiums of INR7.9 bn and Bharti AXA GI collected gross direct premiums of
INR5.5bn.
Impact: This is the second foray by RIL in financial services after the recent
50:50 JV with DE Shaw in which it plans to invest US$150mn over a 10-yr
period. Media reports (Financial Express) indicate the deal value to be in the
range of US$300-400m. Given RIL's balance sheet size and FY11 cash and
cash equivalents of cUS$10bn we believe that the size of the investment is
unlikely to make any significant impact on RIL's valuations going ahead. Last
year when RIL invested cUS$220m in East India Hotels (EIH), it was perceived by the market as a non-core investment and the market reacted
negatively to that. The market is likely concerned about RIL's diversification
outside its core areas of energy / petrochemicals and the impact that could
have on management's focus on growing its energy business.
Reiterate Buy with INR1150 TP: With refining and petchem contributing
two-thirds of RIL's EBITDA, RIL should benefit from strength in downstream
margins, but clarity on gas production ramp-up and capital allocation will be
equally important going ahead. The stock is currently trading at 7.3x FY12e
EV/EBITDA, at the lower end of its three-year trading range.
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