Talks about FDI in insurance spur stock…
Reliance Capital remains one of the key beneficiaries of insurance and MF
sector reforms. The expectation of FDI in insurance being raised up to
49% from 26% has led to a sharp rally in the stock. The Cabinet meeting
on September 25 is likely to discuss the same and with the government’s
fast track reforms, there is a probability of the same getting approved in
principle. Recently, the Japanese giant, Nippon Life bought a 26% stake in
Reliance Life. With the FDI limit opening, we believe along with existing
partners, many foreign players will be interested to take smaller stakes.
Insurance IPOs may also be successful. Foreign funds can come to this
sector much faster than in other sectors where FDI proposals have been
approved in the recent past.
Even allowing the Rajiv Gandhi Equity scheme for MFs remains a positive
for RCap being one of the top 2 AMCs in the country.
Reliance Capital is gradually reducing the non core investment book
exposure and is expected to utilise capital gains to offset loss on exiting a
large portion of listed investments. RoA is strong at ~1.7%. However,
RoE is in high single digits mainly due to large net worth (| 3800 crore
added due to life revaluation). Its consolidated PBT is set to increase.
RCap has remained our conviction buy among NBFCs for long.
With our initial SOTP target price of | 381 based on FY13E being
achieved, as indicated earlier also, rolling all valuations to FY14 can offer
further upsides up to | 435. We recommend investors HOLD the stock.
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http://content.icicidirect.com/mailimages/ICICIdirect_RelianceCapital_QuickComment.pdf
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