Reliance Capital- No positive surprises seen in near term :ICICI Sec

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No positive surprises seen in near term…
Profits continued to remain subdued at | 112 crore declining 28% YoY
(though slightly above estimates). Total income continued its negative
growth by dipping 10% YoY and rising marginally 3% QoQ to | 1299
crore. We believe no near term triggers remain for the stock. We have
revised down our PAT estimates also.


Asset management – AUM rose to | 1087 billion from | 1013 billion
sequentially. PBT increased 3% YoY and 18% QoQ to | 77 crore. PBT
margins improved sequentially from 36% to 39% as a positive surprise.
Consumer finance – Loan book grew 21% YoY to | 1000 crore generating
PBT of | 61 crore. The | 9300 crore from above is secured and GNPA is at
| 250 crore with 72% provision coverage ratio. NIMs are healthier at
5.8%. We believe there is huge potential in this business segment.
Broking segment - It continues to lose market share from 2.1% to 1.2%
but this has resulted in yields improving from 1.7 bps to 2.5 bps. Hence,
PBT has increased to | 5 crore from | 4.2 crore in Q2FY10 and | 3.6 crore
in Q1FY11. From this quarter, the distribution business has been
transferred in the new company and this has generated income of | 8.6
crore and PBT of | 2.5 crore.

Life insurance and general insurance – It has maintained its market share
at 8.5% in the private sector new business premium (8.9% in Q1FY11).
NBP grew 8% YoY to | 810 crore in Q2FY11 with margins showing a
positive move to 17.9% from 17.7% in this environment. GWP at | 429.3
crore increased sequentially but has declined YoY. However, losses
continue to haunt the general insurance pack with | 28.2 crore loss. The
combined ratio is down to 118% from 124% sequentially showing
improved performance though claims remain high on the health portfolio,
which led to losses.

Valuation
As RCAP has denied selling its life insurance stake in FY11 but as the
general insurance stake sale can happen in the next two quarters, we
have revised income and PAT to shift major capital to FY12E from FY11E
earlier. Return ratios will remain at sub 10% levels for next two years.
Lower booking of regular capital gains to build operational profits has
continued to reduce earnings volatility. We have reduced valuation
multiple of Life Insurance and hence SOTP target price to | 743 per share.