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Reliance Capital (RCap) reported profits of INR334mn in Q2FY12
(compared with INR1.1bn in Q2FY11). Higher interest/employee costs,
losses in general insurance, muted performance in securities/distribution
business and a one-time provisioning (on mortgage loans) led to lowerthan-
expected profitability. On the positive side, asset management
continued as consistent source of earnings, disbursements remained
strong in commercial finance business, activity levels were maintained in
broking/distribution business and capital gains booked of INR 800 mn.
We maintain ‘BUY’ on the stock with TP of INR526.
• Reliance MF AUMs came below INR1tn due to unconducive capital markets; focus
continues to be on retail long-term debt, leaner costs and high-yielding products.
• Growth momentum was sustained in consumer financing: Loan book was up 7%
QoQ led by mortgages and auto, NIMs came off 20bps to 4.1% and credit cost was
at ~60bps due to one-time standard asset provisioning on mortgage loans.
• After gaining traction in Q1FY12, general insurance business once again lost
momentum: GWP declined 30% QoQ; combined ratio was lower by 7% points at
123%.
• Reliance Life posted fourth consecutive quarter of profits (INR82mn); new
business volume dipped 49% YoY; NBAP margin was sustained at 15%.
• Activity level was constant in securities/distribution business, but higher opex led
to a decline in PBT.
Outlook and valuations: Core businesses intact; maintain ‘BUY’
We believe the asset management and consumer financing will be key earning drivers while
general insurance will be a dampener on earnings (primarily due to third-party pool).
Regulatory changes will cap NBAP margins in life insurance at 15%. Investment profit from
stake sale in operating businesses will aid profitability as proceeds will be primarily used to
bring down debt levels which will ease cost pressures. Our SOTP fair value (FY13E) stands at
INR526 per share and we maintain our ‘BUY/Sector Outperformer’
recommendation/rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Capital (RCap) reported profits of INR334mn in Q2FY12
(compared with INR1.1bn in Q2FY11). Higher interest/employee costs,
losses in general insurance, muted performance in securities/distribution
business and a one-time provisioning (on mortgage loans) led to lowerthan-
expected profitability. On the positive side, asset management
continued as consistent source of earnings, disbursements remained
strong in commercial finance business, activity levels were maintained in
broking/distribution business and capital gains booked of INR 800 mn.
We maintain ‘BUY’ on the stock with TP of INR526.
• Reliance MF AUMs came below INR1tn due to unconducive capital markets; focus
continues to be on retail long-term debt, leaner costs and high-yielding products.
• Growth momentum was sustained in consumer financing: Loan book was up 7%
QoQ led by mortgages and auto, NIMs came off 20bps to 4.1% and credit cost was
at ~60bps due to one-time standard asset provisioning on mortgage loans.
• After gaining traction in Q1FY12, general insurance business once again lost
momentum: GWP declined 30% QoQ; combined ratio was lower by 7% points at
123%.
• Reliance Life posted fourth consecutive quarter of profits (INR82mn); new
business volume dipped 49% YoY; NBAP margin was sustained at 15%.
• Activity level was constant in securities/distribution business, but higher opex led
to a decline in PBT.
Outlook and valuations: Core businesses intact; maintain ‘BUY’
We believe the asset management and consumer financing will be key earning drivers while
general insurance will be a dampener on earnings (primarily due to third-party pool).
Regulatory changes will cap NBAP margins in life insurance at 15%. Investment profit from
stake sale in operating businesses will aid profitability as proceeds will be primarily used to
bring down debt levels which will ease cost pressures. Our SOTP fair value (FY13E) stands at
INR526 per share and we maintain our ‘BUY/Sector Outperformer’
recommendation/rating on the stock.
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