Reliance Capital - AMC stake sale: Raking in the moolah :: Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Reliance Capital will offload 26% stake in its asset management business (RCAM) to Nippon for INR14.5bn (~USD285mn) thereby valuing this business at INR56bn (~USD1.1bn) or INR225 per share. We were ascribing a value of INR45bn (INR185 per share) to this business in our SOTP fair value (~20% lower than the deal value).

Deal valued at 6.4% - higher compared to the past few deals

RCAM had AUM of INR870bn as of December 2011 (MF at INR843bn, PMS at INR18bn and offshore AUM at USD180mn); consequently the deal values the company at 6.4% of December, ‘11-end AUM. The valuation seems to be on a higher side as compared to the past few deals.

Impact – Directionally positive

We have been highlighting since past few quarters that stake sale in operating businesses will be a key trigger for the stock. This deal will be directionally positive as the management has been guiding for a stake sale since long. It also needs to shore up the capital base to scale up growth in other businesses. The deal will be subject to necessary regulatory approvals which the management expects to come through within three months.

Earlier, Nippon Life had acquired 26% stake in Reliance Life (held directly and indirectly by Reliance Capital) for USD680mn, pegging the value of its life insurance venture at USD2.6bn (INR468/share) - against our valuation estimate of USD1.4bn. (INR260/share).